FSB to Recommend Measures to Control Bank Runs Spurred by Social Media

The Financial Stability Board (FSB) is set to deliver a report to the G20 in October, shedding light on the influence of social media in accelerating bank deposit outflows and the potential need for changes to liquidity rules.

This investigation comes in the wake of the failure of Silicon Valley Bank (SVB) in March 2023 caused by rapid outflows that were partially fueled by posts on social media, Reuters reported Monday (Jan. 22).

FSB Secretary General John Schindler stressed the importance of understanding the evolving dynamics of deposits, the role of social media, and the impact of new technology, according to the report.

SVB experienced deposit outflows of $42 billion in 10 hours, the report said. By analyzing the influence of social media, the FSB aims to identify vulnerabilities and determine if adjustments to liquidity rules are necessary.

While specific policy options have not been outlined yet, Schindler emphasized the need to strengthen the resilience of the financial system, per the report. One potential approach under consideration is the implementation of liquidity buffers. The FSB’s forthcoming report is expected to provide recommendations to the G20 on policy measures that can enhance the stability of the global financial system.

In response to recent events, including the forced takeover of Credit Suisse, the Basel Committee of banking supervisors is also considering potential reforms to its liquidity rules, according to the report. These rules encompass 30-day and 12-month liquidity requirements for banks. The committee’s input will contribute to the FSB’s report, further informing the potential need for adjustments to liquidity regulations.

The FSB will also explore policy options to address leverage in non-bank entities, including investment funds, and will assess nature-related financial risks, the report said.

In April, Klaas Knot, chair of the FSB, said the turmoil in the banking industry during the previous month underscored the need for greater action.

“The full, timely and consistent implementation of international financial standards remains key to bolstering global financial stability,” Knot said at the time in a letter to the finance ministers and central banks of the G20 nations.

During that same month, it was reported that small banks could face tougher global regulations in the wake of the banking crisis.