Silicon Valley Bank’s collapse was fueled by "the first bank stampede fueled by Twitter’

() — The massive amount of customer withdrawals that led to the collapse of Silicon Valley Bank had all the makings of an old-fashioned bank run, but with a new twist befitting the core industry the bank served: much of it unfolded online. .

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

In the day before the bank collapsed, a number of prominent venture capitalists took to Twitter in particular and used their big platforms to raise the alarm about the situation, sometimes writing in all-caps. Some investors urged startups to rethink where they kept their cash. The founders and CEOs then shared tweets about the bank’s troubling situation on private Slack channels, according to The Wall Street Journal.

On the other side of the screen, start-up leaders scrambled to withdraw funds online — so much, in fact, that some told the online system appeared to be failing. Still, the end result was a modern race 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 very fast-moving rumors. The reason it would happen is that people would walk down the street and look at people standing outside banks,” Andrew Metrick, the Janet L. Yellen Professor of Finance and Management at the Yale School of Management, told . “Now we don’t have that, but we do have Twitter.”

The bank run experience 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 through mobile devices.

“What made Silicon Valley Bank unique was (1) the ease with which its customers could make withdrawals and (2) the speed with which news of Silicon Valley Bank’s impending demise spread,” he wrote in a letter. publication this Monday Ben Thompson, an analyst who follows the technology industry. “It was the speed, driven by zero distribution costs for both buzz and withdrawals, that was so unsettling.”

Silicon Valley Bank was arguably especially susceptible to those factors given its tech-focused customer base. In addition, his clients, many of whom were venture capital-backed companies, were far more likely than the average consumer to hold more than the standard FDIC-insured maximum amount of $250,000 in their accounts.

“The FDIC covers 250K, but am I going to get my full 8 figures back?” a startup founder told last week, after the bank collapsed. Other big tech companies kept even larger sums in the bank. That probably made the bank’s customers even more susceptible to the panic spreading online.

Some prominent tech figures, including Mark Suster, a partner at venture capital firm Upfront Ventures, urged members of the venture capital community to “speak publicly to quell the panic” around Silicon Valley Bank last week and they warned against creating “mass hysteria”.

“Classic ‘bank runs’ damage our entire system,” he wrote. in a long twitter thread Thursday. “People are making public jokes about this. This is not a joke, this is something serious. 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, only adding to the viral panic on Twitter.

“YOU SHOULD BE ABSOLUTELY TERRIFIED RIGHT NOW,” Jason Calacanis, a tech investor, wrote on Twitter on Sunday. “THAT IS THE APPROPRIATE REACTION.”

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