Screaming "Bank run!" in a crowded Twitter
Social media's growing influence on financial narratives.
Over the past week, we witnessed the collapse of two U.S. banks: Silicon Valley Bank (SVB), the 16th largest bank at the time, and Signature Bank, which was known for its crypto-friendly policies. Their failure is a seismic financial event that casts 2008 vibes throughout the country, and it goes without saying that it doesn’t feel good. I maintain my position that what’s happening now is much different than before—for technical and academic reasons we don’t need to get into today, and also due to the persuasive (and pervasive) role that social media plays in our lives.
In 2008, financial news was primarily disseminated through traditional media sources, such as cable news channels, and websites like CNBC, CNN, and Bloomberg. We had to wait patiently for carefully worded statements from top executives, business leaders, and government officials. Even that information was then filtered through the opinions of pundits and reporters on television and in print. However, in the years to follow, social media emerged with game-changing power to create and influence narratives in ways previously unthinkable. Look to the pandemic as your prime example of how easily public perception and behavior can be impacted.
I won’t lie: my first stop for information is Twitter. In real time, I witnessed California state regulators shut down SVB. I listened to financial power players like Bill Ackman react to the breaking news. I heard startup founders share their stories. And I witnessed leaders of the VC community scream “BANK RUN!” in hopes of getting their deposits backstopped. Within hours of the SVB collapse, I read a Substack that provided a detailed account of what happened, and on Twitter Spaces, I heard from a diverse group of professionals ranging from former banking presidents to small business owners with millions of dollars stuck in limbo.
Social media has changed the state of play in the financial world. For better or worse, I believe the speed and volume at which information now travels creates faster answers for people looking for them.
However, the influence of social media goes beyond merely disseminating information. It can have a tangible impact on outcomes. Take, for example, Dogecoin surging in price after Elon Musk's endorsement in 2021, or the infamous Reddit community that rallied together to squeeze the shorts out of GameStop and AMC. These instances demonstrate that social media users are not just bystanders to financial events anymore. They can actively steer narratives, propel action, and place pressure to resolve situations with record speed that has become the norm for almost anything in our digital age.
Look at what some VCs did in the midst of SVB’s collapse. Some would argue they intended to bring phrases like “bank run” to the forefront the same way someone would scream “fire” in a crowded theater. They created urgency not just because they had money with SVB, but because they knew the perceived domino threat of bank runs would stoke the government to act with haste. They used social media to apply pressure to the situation that impacted them the most. Right or wrong, they ultimately got what they wanted, and it’s hard to imagine they didn’t play some role in the government stepping in as quickly as they did.
Social media also gave a platform to impacted founders and individuals to share their stories. Since SVB primarily served startups that had deposited their funds with the bank, these entrepreneurs turned to social media to inform their customers and the public about their predicaments. Employees were at risk of not getting paid, and businesses were at risk of being unable to operate. People felt the impact and took action to support them. With an election cycle looming, the government couldn't sit back and watch Americans lose their jobs and livelihoods because of a bank's investment decisions. The government had no choice but to move with the swiftness that social media demands, which is interesting when you contrast such prompt efforts with the government’s latency on other social and political issues.
The collapse of these banks highlights yet another way that social media has changed our way of life. It shifts narratives. It moves markets. It may even impact policy. Is this the new normal for how we handle economic strain? One thing’s for sure: this isn’t 2008. But I hope we stop finding reasons for comparison.
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Tweets
Twitter is a hot mess and you've described in fine detail how to leverage a hot mess to find answers to important questions in real time for the impatient generation!