Silicon Valley Bank Latest: A review of the Federal Reserve’s supervision and regulation of Silicon Valley Bank published by the US Fed suggests that the run on deposits at SVB appears to have been fueled by social media. Deposit outflows from increasingly cash-constrained tech and VC-backed firms quickly accelerated as social networks, media, and other ties reinforced a run dynamic that played out at a remarkable pace.

While discussing broader issues exposed by the failure of the bank, the report says that social media enabled depositors to instantly spread concerns about a bank run.

First, the combination of social media, a highly networked and concentrated depositor base, and technology may have fundamentally changed the speed of bank runs. Social media enabled depositors to instantly spread concerns about a bank run, and technology-enabled immediate withdrawals of funding.

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Second, a firm’s distress may have systemic consequences through contagion—where concerns about one firm spread to other firms—even if the firm is not extremely large, highly connected to other financial counterparties, or involved in critical financial services.

Third, this experience has emphasized why strong bank capital matters. While the proximate cause of SVB’s failure was a liquidity run, the underlying issue was concern about its solvency.

As the risks to the firm’s balance sheet mounted, SVBFG took steps to address the issues and announced a plan on March 8, 2023, to restructure its balance sheet. The next day, SVB experienced a bank run as withdrawals of uninsured deposits rapidly accelerated.

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The report identified highly correlated withdrawals from SVBFG’s concentrated network of VC investors and technology firms who, fueled by social media, withdrew uninsured deposits in a coordinated manner at an unprecedented rate.

In an environment like this one with rapid financial and technological innovation, competition from new financial entrants, macroeconomic uncertainty, more rapid financial flows, and faster communication through social media, all of which bring an uncertain combination of risks and opportunities for the banking system.