Due to Silicon Valley Bank’s March 10, 2023, crash, investor discussions about the institution spiked on Twitter, which fueled the SVB banks run. These tweets also caused some financial institutions with poor balance sheets to collapse, as we explain in our latest working paper,” Public media as a lender run catalyst.”
The bank’s stock ticker,” SIVB ,” was mentioned in a significant number of tweets on March 9 around 9 am EST. Before posts mentioning” SVB” or” Silicon Valley Bank,” which were aspect of a more general-interest word, started, it had been about 2.5 years.
The rapid decline in the company’s share price on March 9 coincided with that spike in trader tweets, which persisted in after-hours trading and before the market opened the following morning. On March 10, the day the bank failed, trading in SVB’s property was halted.
We categorized US businesses, along with a number of other acquaintances, based on the volume of tweets that were sent about them and their susceptibility to potential bank runs.
We multiplied loses the bankers incurred as a result of the series of interest rate increases that started in March 2022 by the percentage of their payments that were below the Federal Deposit Insurance Corp. ‘ s security cap of US$ 250, 000 per account to determine risk.
We discovered that in March, stock of banks with significant Twitter engagement in January and February experienced significantly greater declines. The collection of institutions that were most vulnerable experienced a stronger impact. First Republic Bank was one of them, but it failed on May 1.
The one-third of businesses with the most posts saw drops in their share prices that were, on average, around twice as large as those of the other businesses when we examined what happened to the assets of all those with susceptible balance sheets between March 6 and March 13.
Why is it important?
Social marketing may have contributed to Silicon Valley Bank’s death, according to US politicians.
The Great Depression-era bank crisis is primarily responsible for the current understanding of bank functions. Back again, panic among banks customers was spread by word-of-mouth, media coverage, and social signals like lengthy lines outside of banks.
Since traditional media outlets primarily rely on one-way transmission from legal resources to the general public, the size of the reader and the quick spread of ideas set social media apart from newspapers and broadcast message.
Banks will undoubtedly continue to be concerned about this, especially in light of the problems that some financial institutions are currently experiencing.
What additional research is being conducted
Many of the ideas we raised in our documents were emphasized in a statement on SVB’s loss that the Federal Reserve released on April 28. It highlights SVB’s poor risk management and a sizable portion of Silicon Valley startup neighborhood savers, who are frequently very energetic and well-connected on social media.
Another group of academics, under the direction of Itamar Drechsler, a finance professor at the University of Pennsylvania, found that the subsequent rise in insured deposit accounts may weaken banks.
The development of perfectly modern businesses and mobile banking apps may increase this risk even more, according to ongoing research from a team of researchers at Columbia University and the University of Chicago.
What is unknown
According to reports, lenders who quickly withdrew money from SVB already used telephone calls, group email messages, Slack, and WhatsApp to express their worries.
However, since there is no content that is readily available to the public, it is difficult to determine what part those some, less formal dialogues played in causing the SVB bank run.
Tony Cookson is Associate Professor of Finance, University of Colorado Boulder and Christoph Schiller is Assistant Professor of Finance, Arizona State University
Under a Creative Commons license, this story has been republished from The Conversation. read the article in its entirety.