Banking panics at full speed: money flies in the age of apps and social networks

The event went rather unnoticed.

Several Metro Bank branches in west London were suddenly besieged by hordes of customers demanding their money back and their jewelry stored in safe deposit boxes.

It was May 2019, and word had spread via WhatsApp that his bankruptcy was near.

The entity responded that these were unsubstantiated rumors.

It fell on the stock market, but ended up calming things down and survived.

Four years later, a new batch of bank panics is ravaging the United States and Europe.

And in all of them one thing is striking: there have been no queues or they have been irrelevant to the final fate of the injured party.

pic.twitter.com/HS0OidtrQj

— househusband (@househu55852411) May 13, 2019

The words Silicon Valley were until recently equivalent to success.

When a country built a powerful technological ecosystem, the qualifier was immediately added to it.

This is the case with Bangalore, the Indian Silicon Valley.

Or with Shenzhen, the Chinese Silicon Valley.

This month we learned that there was also a financial entity called Silicon Valley Bank (SVB), and when those two terms resonate, the mythology of

born in garages now competes with a less dazzling mystique: that of the banks that ended up in the cemetery.

Its collapse opened the ban on the current banking crisis.

It is not the first nor will it be the last entity that ends up going bankrupt, but its collapse has a point that makes it unique: the 42,000 million dollars withdrawn in just 10 hours, a rate of more than one million dollars per second, is the exit of deposits faster than ever.

Behind those numbers is a different business model.

Since their clients were mostly companies, and they keep larger amounts in their accounts, the flight of funds is easier.

But Silicon Valley Bank is also a symbol of the new risks facing banks: digital applications allow money to be moved instantly, without giving authorities time to intervene with an urgent bailout.

In the past, with the drop by drop of customers going through the window, the time frame was much greater before everything was irreversible.

More information

Doubts about Deutsche Bank drag European banks to a black Friday on the stock market

The bank is also an example of another recent phenomenon, that of the stampedes promoted by an alert that is gaining dimension on social networks, WhatsApp, Slack and other digital communication platforms.

“Everything precipitated when the losses in his bond portfolio became known.

The market became wary and WhatsApp messages and online withdrawals began,” says Germán López Espinosa, Professor of Accounting at the University of Navarra and IESE Business School.

"In the case of Banco Popular, for example, there was no one-day bloodletting, although there were statements that generated fear," he compares.

Messages like the one from the

Kim Dotcom calling to get money out of the banks in the midst of a financial storm had 2.4 million views on Twitter.

His profile has 1.3 million followers, and he is not the only one who these days has been issuing recommendations capable of amplifying the anxiety of customers, unable to know for themselves if their bank is solvent.

“Rumors spread faster on social networks, and it is difficult for banks to stop them.

It is a subject to reflect on”, points out Antonio Carrascosa, former general director of the FROB (Fund for Orderly Bank Restructuring).

Other messages, such as the one from entrepreneur Jason Calacanis (700,000 followers on Twitter) saying: “You should be absolutely terrified right now”;

or that of Bill Ackman, billionaire and CEO of a fund, with 685,000 followers, anticipating new outflows of deposits in the sector, helped to spread a climate of uncertainty.

wonder

if the Silicon Valley Bank would not be the first collapse born of the Twitter panic.

Run on the bank!

🏃🏻‍♀️

Get your money out.

First thing on Monday.

US banks are in trouble.

FED emergency meeting.

Deposits may get locked.

Possible withdrawal limits.

When markets collapse your bank deposits that US banks use to invest may be in danger.

Cash is king.

Get out now!

— Kim Dotcom (@KimDotcom) March 12, 2023

It has not only happened in the SVB and the noisy American social networks.

In presumably peaceful Switzerland, when Credit Suisse Chairman Axel Lehmann was asked on Sunday, at a press conference about its takeover by UBS, about those responsible for the disaster, the top executive alluded to the "storm on social media." unleashed in autumn.

Many have criticized him for this, seeing in the message an attempt not to take responsibility for him.

Lehmann was referring to a tweet posted, then deleted, by Australian business journalist David Taylor of ABC, in which he suggested that a major international bank was on the brink.

It didn't take too much thinking.

They all assumed it was Credit Suisse.

Another battlefront was the bank's complaint against the web

, in which confidential information about the internal affairs of Swiss entities is dumped, and which takes its name from the square in Zurich where UBS and Credit Suisse are headquartered.

The latter's clients withdrew some 123 billion Swiss francs from their accounts in 2022 – a similar amount in euros – the majority in the last quarter.

It is impossible to know how this bad publicity influenced social networks and other platforms, but the entity's leadership is convinced that at least it contributed to fattening the snowball that dragged it into the abyss.

A protester adorned his hat with photos of Swiss franc notes outside the Credit Suisse headquarters in Zurich on Monday.

Stefan Wermuth (Bloomberg)

How can a bank protect itself against these new threats?

For Antonio Moreno, professor of Applied Economics at the University of Navarra, there are ways to create firewalls.

“What helps to avoid panics is to diversify deposits and assets.

When you receive deposits from very different people, it is more difficult for them to coordinate to withdraw money at the same time.

That was what happened at Silicon Valley Bank, where a certain sector, that of technology, made withdrawals and the flight was very fast.

The same is true with assets: you have to diversify your risk, and the SVB was an example of what not to do because it bought too many bonds.”

The big ones, more protected?

Even this does not mean absolute protection against false news or the viralization of real problems that spread a perception of risk and amplify the problems.

Given this situation, Scope Group consultant Sam Theodore believes that banks' stress tests, where authorities measure their strength to resist adverse events, should incorporate these digital risks as a factor.

In his opinion, they can encourage a transfer of money from small and medium banks to the big ones.

“A massive withdrawal of digital deposits can have dire consequences for any bank, but this is highly unlikely to happen to large groups with diversified franchises – even if they are mostly national – such as the leading national banks across Europe.

The situation is different for smaller and insufficiently diversified second- and third-tier banks, which remain inherently more vulnerable,” he says.

That diagnosis would give hope to Deutsche Bank, Germany's largest bank, in the market's peephole.

And it explains the escapes of US regional banks to giants like JPMorgan and Citigroup, perceived by the general public as

—too big to fail—, and therefore safer.

The Swiss National Bank insisted a few days before Credit Suisse's fall that the entity had sufficient liquidity and capital.

And their official figures endorsed it.

Its continuity on its own was only considered impossible when the withdrawals of money reached around 10,000 million some days.

The crisis of confidence was spreading without a single cry at the doors of its branches.

The clients, invisible as ghosts, had long been reading the news about the bank's scandals and poor results, watching the debates that were opening up about it on social networks, and following the last hour of the banking crisis in the United States.

The most cautious moved their money in a way that was as relentless as it was clean, taking advantage of those convenient applications,

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