SVB’s ‘Twitter-Fueled’ Collapse Makes Banks Reassess Social Media

Lenders are reportedly examining their social media strategies following recent banking failures.

Banks around the country have begun coming up with plans to counter online threats — including internet rumors about the health of their institutions — Reuters reported Thursday (May 18), citing interviews with industry executives and analysts.

According to the report, banks have begun adding social media to their risk-management programs, coming up with plans to “measure internet-related risk, prepare for it and respond to it,” as one executive put it.

The efforts stem from the downfall of Silicon Valley Bank (SVB) in March, which came about in part because Twitter chatter about the bank’s stability led depositors to pull $42 billion from the bank in 10 hours before its collapse.

It was the “first Twitter-fueled bank run,” Rep. Patrick McHenry (R-NC) — who oversees the House Financial Services Committee — said soon after the bank failed.

And Jane Fraser, CEO of Citigroup, said in the days following the SVB collapse that the combination of mobile money and social media had been “a complete game changer.”

“There were a couple of Tweets and then this thing went down much faster than has happened in history,” Fraser said.

“Social media risk was primarily reputational, but now it has led to deposit flight risks, which are existential,” Sumeet Chabria, founder of banking consulting firm ThoughtLinks, told Reuters.

Greg Becker, former CEO of SVB, cited social media as a factor in the bank’s failure during testimony before a U.S. Senate hearing earlier this week.

As PYMNTS reported, Becker testified that SVB announced the sale of part of its securities portfolio the same day Silvergate Bank announced its self-liquidation, leading the banks to become linked in the public’s mind.

“Silvergate’s failure and the link to SVB [Silicon Valley Bank] caused rumors and misconceptions to spread quickly online, leading to the start of what would become an unprecedented bank run,” Becker said.

The Reuters report notes that Michael Roffler, ex-CEO of First Republic Bank, likewise cited social media as a factor when that bank failed earlier this month.

“It has been a wake-up call for some smaller lenders who are now working on updating their emergency response and risk capabilities, along with business continuity plans to tackle this threat,” Chabria said.

Speaking to PYMNTS in March, QED Investors’ Amias Gerety argued that the discussion of social media’s role in SVB’s collapse obscured a larger picture, though he noted the online frenzy might have been a catalyst.

“But the fundamental truth,” said Gerety, “is that it doesn’t really matter whether those runs take place over a day or a week or even a month.”

Banks facing a run just can’t withstand the drawdown of deposits if those drawdowns are significant enough (and in some cases, customers try to pull everything out of the bank).