The frenzy on social media is fueling panic to bust the banks
NEW YORK – Anxious Twitter posts and WhatsApp exchanges coupled with the ease of online banking are seen as helping fuel an internet age that is sweeping across two now-collapsed American lenders.
Both Silicon Valley Bank and Signature Bank have been hit with massive withdrawals from customers fearful of losing their money, but the pace was staggering at a time when rumors were spreading like wildfire on social media and apps made it easy to transfer money at the touch of a button.
Congressman Patrick McHenry, chairman of the US House Financial Services Committee, has called the recent turmoil “the first Twitter-fueled bank run.”
Some news that caused cold sweats among financial clients proved misleading, prompting calls to focus on facts rather than speculation.
Gone are the days when a “run on the bank” meant hordes of customers banging on locked doors demanding deposits back.
Now that rumors of dwindling bank reserves are bouncing off social media, customers can make them true by tapping into online accounts to transfer funds.
Federal authorities took over Silicon Valley Bank (SVB) last week, less than 48 hours after it was first announced bad news.
Signature Bank was forced to close just two days later.
In between, high-profile entrepreneurs sounded the alarm and fired advice on Twitter.
Investor Bill Ackman tweeted over the weekend that unless federal regulators act quickly and guarantee all deposits, runs on other banks would begin Monday.
“You should absolutely be scared by now,” tweeted investor Jason Calacanis, using all caps for emphasis.
“That’s the right response to a bank run and contagion.”
Meanwhile, startup founders shared rumors of banking troubles on WhatsApp groups.
“The mix of technology and fast-moving rumors has fueled a crisis of unprecedented speed,” researcher Jonathan Welburn of think tank Rand Corporation told AFP.
Online banking existed during the 2008 financial crisis, but “the adoption of these technologies is definitely increasing,” he said.
– circuit breaker? –
Banking regulators need to set up “circuit breakers” that could quickly suspend bank transactions in the event of cyberattacks, weather disasters or customer panics, said Hilary Allen, a financial technology specialist at American University in Washington.
This is a “very political” endeavor, Allen said.
“Banking regulators need to think about what this type of technological circuit breaker would look like and under what circumstances they would be willing to use it.”
Markets have seen the power of online platforms send “meme stocks” such as video game retail chain Game Stop and AMC Theaters soaring on the back of recommendations on Reddit chat forums.
“The downside is that social media can also exacerbate panic and loss of trust,” Allen said.
In the case of SVB, fears circulating on social media were met with a vociferous response from the bank’s customers, who were typically tech-savvy entrepreneurs keen to converse online.
The SVB collapse was the second largest bank failure in the United States, but it happened in barely two days.
The country’s largest bank failure, Washington Mutual’s in 2008, happened over the course of eight months.
At the time, Twitter and iPhones were fledgling products; There were no WhatsApp groups, no Slack chat threads, Welburn noted.
“What happens when bankers drown their sorrows in the social media age?” Welburn wondered.
“Viral posts, retweets and shares could cost regulators valuable time.”
Source: Crypto News Deutsch