SVB collapse fueled by ‘first Twitter-fueled bank run’ | CNN Business

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The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the hallmarks of old-school banking, but with a new twist appropriate to the core industry the bank served: much of it went develop online

Customers withdrew $42 billion in a single day last week from Silicon Valley Bank, leaving the bank with a negative cash balance of $1 billion, the company said in a regulatory filing. The extraordinary withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by the viral panic that spread across social media platforms and, reportedly, in private chat groups.

In the day leading up to the bank’s collapse, several prominent venture capitalists took to Twitter in particular and used their large platforms to sound the alarm, sometimes in all caps. Some investors urged startups to rethink where they keep their cash. Founders and CEOs shared tweets about the bank’s troubling situation in private Slack channels, according to The Wall Street Journal.

On the other side of a screen, startup leaders scrambled to withdraw funds online — so many, in fact, that some told CNN the online system appeared to be crashing. Still, the end result was a modern-day run to withdraw funds, which House Financial Services Chairman Patrick McHenry later described in a statement as “the first Twitter-fueled bank run.”

“Even in ancient times, long before we had any form of modern communication, these things tended to be rumors that moved very quickly. The reason it would happen is that people would walk down the street and observe people outside the pews Andrew Metrick, the Janet L. Yellen Professor of Finance and Management at the Yale School of Management, told CNN. “We don’t have that now, but we have Twitter.”

The experience of running the bank was also a far cry from earlier days when large numbers of customers would physically show up at a bank to withdraw funds (although some also lined up outside Silicon Valley Bank locations). Now, many could. online or via mobile devices.

“What made Silicon Valley Bank unique was (1) the ease with which its customers could execute withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread Ben Thompson, an analyst who tracks the technology industry. , he wrote in a post on Monday. “It was the speed, fueled by zero distribution costs, for both rumors and withdrawals, that was so destabilizing.”

Silicon Valley Bank was certainly particularly susceptible to these factors given its technology-focused customer base. In addition, his clients, many of whom were corporate-backed businesses, were much more likely than the average consumer to keep more than the standard FDIC-insured maximum amount of $250,000 in their accounts.

“FDIC covers 250K, but will I get all my 8 figures back?” a startup founder told CNN last week, after the bank collapsed. Other big tech companies kept even bigger sums in the bank. This likely made the bank’s customers even more susceptible to panic spreading online.

Prominent tech figures, including Mark Suster, a partner at venture capital firm Upfront Ventures, urged those in the venture capital community to “speak up publicly to calm the panic” surrounding Silicon Valley Bank last week and warned that “mass hysteria” was not created.

“Classic ‘bank runs’ hurt our entire system,” he wrote to one long twitter thread Thursday. “People are making public jokes about this. It’s not a joke, this is serious stuff. Please treat it as such.”

His calls for calm were not enough. The next day, the US Federal Deposit Insurance Corporation stepped in and took control of the bank, which only added to the viral panic on Twitter.

Jason Calacanis, a tech investor, “YOU SHOULD BE ABSOLUTELY STUNNED RIGHT NOW.” he wrote Sunday on Twitter. “THIS IS THE RIGHT REACTION.”

Hours later, the Biden administration stepped in and guaranteed that the bank’s customers would have access to all their money starting Monday.