24 hours was how long it took for depositors to withdraw $42 billion from Silicon Valley Bank (SVB), leading to the second-largest bank failure in the history of the United States of America. The catalyst that fanned this wildfire was none other than a speculative and fearful narrative that went viral on social media.
Let’s take a step back to unravel ‘the first Twitter fuelled bank run’ - a term Congressman Patrick McHenry, chairman of the US House Financial Services Committee, used to describe the collapse. The chaos began when SVB announced that it planned to sell stock and preferred stock to cover the shortfall created by selling $21 billion worth of bonds at a $1.8 billion loss.
This announcement stirred fear among venture capitalists as many expressed their panic over social media and private messages with their portfolio startups - the same people who made up the bulk of SVB’s client base.
The overarching narrative being shared was along the lines of “Get your money out ASAP or never see it again.” Despite the statement not being 100% factual, it went viral. And that was enough to cause irreparable damage. SVB depositors acted on the narrative which caused the bank’s downfall as it could not cover the withdrawals and the rest is history.
Ripple waves of fear
This widespread narrative and fear caused extreme panic with depositors at other banks, prompting a series of large withdrawals at Signature Bank, days after the fall of SVB, before it was seized by regulators.
The underlying panic that persisted in the financial sector continued to rock institutions across geographies. Switzerland’s Credit Suisse announced that it would take a $53.7 billion loan from the Swiss central bank after its share price plummeted as much as 30%.
The lingering fear caused by the fallout of SVB, coupled with Credit Suisse’s poor reputation involving scandals and stock volatility, propelled the Swiss Bank to the brink of failure before being taken over by UBS.
While SVB may be the first bank run caused by fearful narratives spread through social media, viral narratives have been shaking economies and organisations for decades.
Psychological impact of messaging
Many economic phenomena are driven not by economic fundamentals but rather by popular stories and narratives that go viral. I’m sure many economists will hate to admit this.
Bitcoin, for example, gained popularity largely because consumers were weary of financial institutions after the 2007 financial crisis, and Bitcoin enables every individual with access to a store of value without any centralised control. As Bitcoin and other cryptocurrencies gained popularity, stories of entrepreneurship and financial independence stemmed out. Speaking of the 2007 crisis, the underlying narrative that fuelled the housing bubble was constant stories communicating exaggerated returns investors can make through property investing.
Importance of messaging and communications
Understanding the importance of creating and controlling a narrative, or identifying a story before it goes viral, is a crucial skill all communication professionals need to excel in. PR professionals are exposed to vast amounts of data on the media every day - such as trending topics, latest rumours on Reddit or Tiktok, or the sentiments of a certain brand.
By piecing together narratives, sentiments and conversations, communications consultants will have the ability to anticipate, detect, prepare for and potentially reduce the damage of crises and economic events.
To achieve this, the role of communications professionals needs to evolve beyond flagging negative press as they occur - but instead provide an extra layer of insights where all the data points are painted into a picture that shows a clear trend (no trend is also a clear trend). This will, in turn, provide an additional layer of risk mitigation for corporations by understanding the power of narratives.
Joel Lah is the chief research officer and fintech lead at communciations agency TriOn & Co.