Twitter played key role in Silicon Valley Bank bankruptcy: report
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The US authorities have recognized that social networks may have influenced the bankruptcy of Silicon Valley Bank. Investigators reveal that hours before the collapse there were a series of tweets from investors
The collapse of Silicon Valley Bank in mid-March shocked the US financial system and the entire world, and a recent investigation suggests that Twitter was key in the bank's downfall.
Research published in SSRN reveals that prior to the collapse of Silicon Valley Bank (SVB) on March 10, 2023, Twitter conversations among investors about the bank skyrocketed , helping fuel the SVB bank run.
The authors of the study “Social networks as a catalyst for bank runs” explain that these tweets published by investors also destabilized other financial institutions with weak balance sheets.
The number of tweets mentioning “SIVB” increased sharply on March 9 around 9 a.m. Eastern Time. That was about two and a half hours before the tweets mentioning “SVB” or “Silicon Valley Bank” began , which were part of a more general interest debate.
That surge in investor tweets coincided with the bank's rapidly falling share price on March 9, which continued in after-hours trading and before the market opened the next morning. Trading in SVB shares was discontinued on March 10, the day of the bank's bankruptcy.
The researchers grouped US banks by the number of tweets posted about them and by their vulnerability to a potential bank run. To measure vulnerability, they multiplied the losses banks incurred due to the series of interest rate hikes that began in March 2022 by the proportion of their deposits that were below the Federal Deposit Insurance Corp's insurance limit. $250,000 per account.
They found that shares of banks with a lot of Twitter activity in January and February suffered much larger declines in March. This effect was greater in the group of banks with greater vulnerability. One of them was First Republic Bank, which went bankrupt on May 1.
When they looked at what happened to the shares of all banks with vulnerable balance sheets between March 6 and 13, the third of banks with the most tweets saw their share prices decline on average about twice as much as the others.
Authorities recognize possible influence of social networks
The authors of the investigation reveal that the US authorities have recognized that social networks may have influenced the bankruptcy of Silicon Valley Bank.
Depositors who quickly withdrew their money from the SVB also reportedly used private communication channels, such as group text messages, Slack and WhatsApp, as well as phone calls, to share their fears and concerns.
But with no publicly available data, it's hard to figure out what role these other, less formal conversations played in precipitating the SVB's bank run.