‘A bank sprint, not a bank run’
These days, depositors’ mass fear can go viral faster than regulators are able to respond
NEW YORK — A bank run conjures images of “It’s a Wonderful Life,” with anxious customers crammed shoulder to shoulder, desperately pleading with a harried George Bailey to hand over their money.
The failure of Silicon Valley Bank last week had the panic but few other similarities, instead taking place on Twitter, message boards, cell phones and bank websites.
What made the failure of Silicon Valley Bank unique compared to past failures of large banks was how quickly it collapsed.
On March 8, the $200 billion bank announced a plan to raise fresh capital; by March 10 it was insolvent and under government control.
Regulators, policymakers and bankers are looking at the role digital messaging and social media may have played in the collapse, and whether banks are entering an age when the psychological behavior behind a bank run — mass fear from depositors of losing their savings — may be amplified and go viral quicker than bank officers and regulators can successfully respond.
“It was a bank sprint, not a bank run, and social media played a central role in that,” said Michael Imerman, a professor at the Paul Merage School of Business at the University of California-Irvine.
The Federal Deposit Insurance Corporation estimates that customers withdrew $40 billion — one fifth of Silicon Valley Bank’s deposits — in just a few hours, prompting the agency to shut down the bank in the morning, instead of waiting until the close of business, which is typical operating procedure for regulators when a bank runs short of money.
Some other well known bank failures, such as IndyMac or Washington Mutual in 2008 or Continental Illinois in the 1980s, only happened after days or weeks of reports indicated those banks faced deep financial difficulties. Then a run occurred and regulators stepped in.
The Silicon Valley Bank run was, in many ways, the first of the digital era. Few depositors lined up at a branch.
Instead, they used bank apps and phone calls to access their money in minutes. Venture capitalists and business owners described the early stages of the Silicon Valley run being led by private message boards or Slack channels, where entrepreneurs were encouraged to withdraw funds.
For David Murray, the warning of the first bank run of the social-media age came in a one-sentence email.
He’s a co-founder of Confirm.com, an employee performance management company in San Francisco that had millions of dollars sitting in accounts at Silicon Valley Bank. Like many startup companies, Confirm.com was required by its financial backers to bank at Silicon Valley Bank.
Murray received a terse email Thursday morning saying that a run was underway there and recommending everyone pull their money out immediately. The email came from an investor whom Murray hears from so infrequently that his co-founder wondered if it was a phishing attempt or other scam.
After verifying the email and seeing the steep drop in the stock price of the bank’s parent company, SVB Financial, Murray and his colleagues rushed to withdraw the company’s money. Instead of heading to a branch, they quickly pulled up a webpage and logged in. It took a few tries, but they eventually moved every cent to an account at a different bank within a half hour.
Murray could see fear rising among other startup companies in real time.
“We have a trusted network of founders” of startup companies who communicate with each other over Slack, Murray said. “Normally these chat groups are dead. But that day, all the Slack groups were lit up.”
Between 1930 and 1933, during the Great Depression, roughly 9,000 banks failed. Since the FDIC’s creation in 1933, bank runs have become much rarer.
The entire banking industry is now grappling with the fact that they could be the next target of a social media-fueled bank run. The hivelike behavior is similar to what happened during the 2021 “meme stock” boom where companies were targeted by groups of mostly retail investors, although in that case groups of investors were using social media to push stocks higher.
For policymakers, there doesn’t appear to be any immediate solution.
One possibility that’s been around for decades — also depicted in “It’s a Wonderful Life” — is the idea of a bank holiday, where regulators close a bank for a few days to allow cooler heads to prevail.