It took about 36 hours from the time rumors on Twitter started about Silicon Valley Bank’s problems until the bank closed on Friday. Tech investors used Twitter to warn startups to withdraw money from SVB, as the bank is known, to keep their cash safe. The bank’s customers moved $42 billion from their accounts in the day before the collapse.
On Tuesday, the head of Twitter Elon Musk, whose service played a large role in the death of the bank, spoke about the banking crisis, saying that there is a “comparison of the current year with 1929.” It was the year of the famous “Black Monday” that marked the largest selloff in stock market history and the start of the Great Depression.
Much of the current year is the same as 1929
– Elon Musk (@elonmusk) March 15, 2023
Musk’s comments, which were not elaborated, were in response to tweets by Cathie Wood, CEO of high-profile Ark Investment Management. They have complained that regulators failed to address the problems before banks like SVB faced them because they were too busy creating rules for crypto companies. Wood also added that the banking crisis was “visible pressure” as banks publicly reported having fewer assets than liabilities, a sign of trouble.
Twitter, which no longer has a communications team, did not immediately return calls fortunerequest for comments.
Social media has become critical for people to share ideas, news, and opinions. But this may be the first time a banking crisis has at least been managed by social media chatter.
“The irony in this loss of confidence is that the main driver is the technology itself. What makes Silicon Valley Bank unique is (1) the ease with which customers can make withdrawals and (2) the speed with which news of Silicon Valley Bank’s upcoming expansion spreads,” wrote Ben Thompson, business and technology commentator. Monday. “It is the speed, which is supported by the zero distribution cost for rumors and withdrawals, that becomes unstable for entities that are based on arbitrage time.”
Just days before the collapse, SVB Financial, SVB’s parent company, announced an after-tax loss of $1.8 billion in the last three months of 2022 and said it would sell shares to raise $2.25 billion to cover the losses, raising investors’ eyebrows. According to Friday, PayPal co-founder Peter Thiel said he has removed all the money from the venture capital fund from SVB and has advised the company in the fund to move the money, too. Other investment firms including Coatue Management and Union Square Ventures told the company to do the same.
When the news that a prominent investor had pulled money from SVB spread to the tech world, it caused “extreme panic” across the board, fortune reported. Company founders and investors exchanged messages suggesting SVB was in trouble.
Evan Armstrong, who writes the business newsletter Napkin Math, pointed out there how “this whole debacle was potentially caused” by social media. He traced the chatter about SVB on Twitter back to a post by financial newsletter writer Byrne Hobart about how SVB was “technically insolvent last quarter” and has accumulated a lot of debt. The Hobart newsletter is reportedly widely read by venture capitalists, which may have led to many tech investors focusing on SVB in the coming weeks.
Turbulence in the banking industry and the possibility of contagion that will spread the problem further still loom large. Crypto-focused Signature Bank folded a day after SVB while fellow crypto banking firm Silvergate closed a day before SVB. Swiss bank Credit Suisse, meanwhile, saw its shares plunge more than 30% on Wednesday amid fears it was in trouble and working with Swiss authorities on how to stabilize it.
George Ball, chairman of investment firm Sanders Morris Harris, said fortune that the role of social media in driving decisions by bank customers what to do with money will only grow.
“Social media will be a strong driver of deposit and investment flows,” he said, adding “that has already started before SVB.”