SVB is the first social media bank run in history. The crisis will change the banking industry forever.
- The fall of Silicon Valley Bank was the fastest in history, largely due to Twitter-induced panic.
- Many VCs and founders stoked panic on the platform, later deciding to delete their posts.
There's a good chance the run on Silicon Valley Bank would not have happened had it not been for social media.
Bank runs have happened before, but this collapse was a new tech-fueled phenomenon that shocked the banking industry, regulators and most other experts.
Anxiety in the tech community quickly escalated through social media, mainly Twitter. "SVB" was tweeted about roughly 200,000 times on Thursday, with several founders and CEOs of tech companies posting about pulling money from the bank. Tech luminaries, the very people SVB banked for so many years, just couldn't help themselves.
"OK i am hearing from dozens of founders about what to do at SVB. It's an all out bank run," founder Howard Lerman tweeted on Thursday when SVB was trying to raise new capital.
"The thing about a bank run is that there's no upside to keeping your money in the at-risk bank," wrote Xavier Helgesen of Enduring Ventures the same day.
By Friday, depositors had tried to withdraw $42 billion from SVB. The bank was shut down by regulators and taken over by the FDIC.
Never before has a bank collapsed so fast, according to Tom Vartanian, author of "200 Years of American Financial Panics" who was general counsel of the Federal Home Loan Bank Board during the Savings and Loan crisis of the late 1980s.
"The rapidity of the crisis and social media has taught us that tech is obsoleting the current regulatory structure, which was built in the 1930s," he said. "The whole system needs to be looked at differently in a tech-adroit environment."
'Stacking cash on the teller windows'
During the Saving & Loan crisis, there was, of course, a "loss of confidence" that led to a "panic" among depositors, but it spread over the course of weeks, not hours. That helped regulators and government workers quell fears and actively work to stop runs, Vartanian recalled.
"When we were closing saving and loan banks, to stop runs, we used to have banks stacking cash on the teller windows, so people could see it, to deal with the psychological factor of it," Vartanian said. "What would often happen is people would see that, and they'd still get in line and take out the money, but they put it right back. It was the fact of getting it that calmed them down."
Such palliative action no longer seems feasible considering "information is now so immediate, disinformation, too, can be transmitted instantaneously," Vartanian added.
The irony is that the very investors and founders who were most exposed to SVB were the ones who quickly stirred up the panic that led to the failure.
"Our industry has shot itself in the foot," said Mark Suster, a venture capitalist who's call for calm on Thursday went mostly unheeded.
Siqui Chen, founder and CEO of Runway, a financial software startup, deleted some of his tweets about SVB, admitting on Monday that "fanning the flames of a bank run is a bad look for everybody and I don't want to be a contributor."
A little late.
Grant Brooke is another founder who deleted Thursday tweets about SVB, although he has not explained why. One deleted tweet reads, "At this point SVB has hours to arrange an acquisition - as a founder it's your duty to your employees and investors to limit your exposure." Another deleted tweet says, "As one of probably the few founders to go through a modern bank run, get your money out now. They have to say that everything is ok. If you don't have another bank account as your investor to warehouse money in their non-SVB accounts."
Some tech types who banked with SVB have even deleted tweets they put out in support of the bank. Jason Lemkin, a VC and advisor, tweeted Thursday "keeping our $13m at SVB. That's all." The following day the post was deleted and he said in response to CNBC anchor Stephanie Rhule, who noted the deletion: "I was very wrong."
'MONDAY, BLOODY MONDAY'
Meanwhile, Jason Calcanis and David Sacks, tech founders turned investors, have been tweeting about little but SVB since Thursday. By Friday, Calcanis called the situation "DEFCON 1" and that the bank needed to be bailed out.
"ON MONDAY 100,000 AMERICANS WILL BE LINED UP AT THEIR REGIONAL BANK DEMANDING THEIR MONEY – MOST WILL NOT GET IT," he wrote, calling March 13 "MONDAY, BLOODY MONDAY."
When Vivek Ramaswamy, an entrepreneur and conservative activist, noted on Sunday that VCs and some founders seemed to be "going out of their way to push a narrative there will be a bank run on Monday," he drew an angry response from Sacks.
"Faux populist psychopath simultaneously opposes responsible measures to prevent a banking crisis while pre-announcing that he plans to blame the ensuing chaos on those of us who tried to avoid it. Keep this guy as far away from the Oval Office as possible," Sacks wrote.
Rewriting the panic
That tweet is another to have since been deleted. However, the attempt to rewrite the panic of the last four days continues.
Chen, the founder who deleted earlier tweets about SVB, took to Twitter again Monday to say that the histrionics of Calcanis and Sacks actually served to "prevent a massive bank run knowing they would get skewered for it."
Matt Ocko, a co-founder of DCVC, agreed that "without the publicity & sense of urgency" created on and through social media, "the powers that be may very well have stayed asleep and f'ed the country."
How another bank will avoid meeting the same fate at SVB is unclear. One founder's advice is for banks to take social media more seriously, saying "The same types of tactics that can manipulate an election can be used to undermine the strength of a bank."
SVB for its part has deleted its Twitter account entirely.
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