What role did social media play in the Silicon Valley Bank collapse?
North America;USA
The SVB Private logo is displayed outside of a Silicon Valley Bank branch in Santa Monica, California. /Patrick T. Fallon/AFP
The SVB Private logo is displayed outside of a Silicon Valley Bank branch in Santa Monica, California. /Patrick T. Fallon/AFP

The SVB Private logo is displayed outside of a Silicon Valley Bank branch in Santa Monica, California. /Patrick T. Fallon/AFP

"The first Twitter fuelled bank run" - that is how one U.S. congressman characterized the recent dramatic collapse of Silicon Valley Bank (SVB) and the consequent fears of a wider financial crisis. 

International markets nosedived after investors raced to pull their money out of Silicon Valley's largest banks, spurred on by dire warnings from financial analysts on social media platforms. 

Despite a hasty government bailout, SVB was forced to file for bankruptcy in the space of just seven days. 


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As market confidence collapsed, the knock-on effect sent shockwaves throughout the international markets. In Europe, the share price of megabank Credit Suisse fell by 30 percent. Again, Switzerland's central bank was forced to respond at unprecedented speed, averting the crisis by giving a $54 billion loan. 

Finally, UBS agreed to buy its rival Credit Suisse in a multibillion dollar merger engineered by Swiss authorities to prevent more market turmoil in global banking.

Rumors have long fuelled financial crises, but analysts say the widespread use of social media played a key role in driving market speculation. Essentially, hot takes now have the power to crash once solid financial institutions at breakneck speed. That's in part thanks to the volume, high-speed turnover and the often questionable reliability of online financial advice.

So what role did social media actually play in the rapid decline of the U.S.'s 16th biggest bank? What is it about online speculation that has changed the world of finance since the 2008 crash? And how worried should we be about hyper-online analysts precipitating ever more global economic crises? 

CGTN Europe spoke to a financial analyst for expert advice. 


How did social media affect the collapse of Silicon Valley Bank?

While major banking crises have historically taken months or even years to unfold, SVB's failure - the second-largest in American history - took just two days. This was, in part, thanks to financial analysts with large online audiences on Twitter advising investors to pull their money out of the bank all at once. 

"If you are not advising your companies to get the cash out, then you are not doing your job as a board member or as a shareholder," tweeted Mark Tluszcz, CEO of Mangrove Capital, as investors started to pull out of SVB.

Another investor, Jason Calacanis, tweeted: "You should be absolutely terrified right now."

All these warnings precipitated a sudden run on the bank.

Everyone is coming up with their own opinion. Some of that information is correct, and then some of that is just completely out of the park.
 -  Naeem Aslam, CIO Zaye Capital Markets

"The very simple explanation for this is exuberance in the uncertainty because of lack of clarity and lack of information in the market," Naeem Aslam, Chief Investment Officer at Zaye Capital Markets told CGTN Europe.

"Basically, everyone is coming up with their own opinion. Some of that information is correct, and then some of that is just completely out of the park.

"That creates an enormous amount of uncertainty among institutional investors and of course retail clients, and that leads to a bank run," he adds. 


'Social media is where you get the news'

SVB customers realized the extent of their bank's vulnerability just as it collapsed when it became clear it had invested the majority of its customers' deposits into long-dated US government bonds. This is why when the U.S. Federal Reserve rapidly increased interest rates to tackle inflation, the SVB-owned bonds suffered a sharp decline in value.

Many of the bank's customers also needed to access their deposits to meet daily business expenses. But as the value of their investments decreased, the bank struggled to meet its customers' demands.

The decision to sell the shares was to be the final nail in the coffin as a venture capital company advised the companies in its portfolio to withdraw their money from SVB. As this news went viral - through word of mouth as well as social media channels - customers ended up withdrawing $40 billion of its $200 billion deposits, in just a few hours.

"Social media is where you get the news first before anyone," pointed out Aslam.

He says it is the responsibility of every single person in the field to understand the repercussions of the information they "put out there" as it can lead to a "domino effect."

According to The Guardian, experts warn that nervous WhatsApp exchanges and Twitter threads, as well as the accessibility of online banking services, certainly played a role in stoking fears and denting investors' confidence - proving to be a serious catalyst for the current crisis. 

Bank officers and regulators cannot take action that is swift enough in response to mass fear raging like a wildfire and amplified on social media platforms.


Central banks 'lag behind the curve'

Aslam acknowledges that in the current crisis the U.S. banks that have suffered so far - Silicon Valley Bank and Signature Bank - are both linked to the tech sector but he warns "there are going to be other issues as well, [with] other regional banks which do not have a massive balance sheet."

Aslam says this is because they invested in a similar way based on the guidance given by the Federal Reserve. 

"So I do blame the Federal Reserve and the central banks because my frustration is why are central banks always lagging behind the curve, why are they always chasing the company?" questions the CIO. 

"They should be using diagnostic tools to address the issues, rather than coming right at the last minute to put out the fire."

He says collective response is needed to control the ripple effect but "the Wall Street banks aren't doing what they can because they don't want this particular fire to end up on their own doorsteps."

"Such situations are likely to play out at a much higher velocity than ever before, and they are likely to happen more frequently than before," warned the expert.


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