Social media and the role it played in the collapse of Silicon Valley Bank

SALT LAKE CITY — Earlier this year, Silicon Valley Bank became the largest bank failure since 2008.

In the immediate aftermath, social media was blamed for the bankruptcy of the California-based bank. Recently, a group of professors from around the United States released a report indicating how social media can be a springboard for bank runs.

Tony Cookson, an associate professor of finance at the University of Colorado, joined Inside Sources with Boyd Matheson on Monday to discuss how social media is increasing the risk. 

Matheson started off the conversation by asking, “Give us the premise in terms of what you were going after as you looked at social media and the impact it has as a bank run catalyst?”

Pointing the finger at social media

Cookson says right after the bank’s collapse, media outlets had pointed out that social media was active right before the bank run.

“So, we were actually kind of dually motivated by sort of this as well as the really long-lasting literature on bank run and where the role of communication is really important,” Cookson said.

Cookson says he and the other group of professors collected comprehensive Twitter data. With this data, they looked at the intensity of conversations around various banks in the banking industry. 

“And we found that those that sort of had more intensive conversations in the months prior,” Cookson said. “Not necessarily during the run. But a couple of months earlier, were actually those that experienced the greater depth of (greater stock price losses).”

Cookson says the research indicates social media can be a risk facing the banking industry.

“So, we sort of took that as evidence that this pre-exposure to intense conversations on Twitter is sort of a risk that sort of faces banks,” he said.

Influencing bank run at Silicon Valley Bank

Matheson asked, “So kind of describe for our listeners in terms of how that influenced what was going on and how that may have ultimately been part of the equation in terms of the run?”

Cookson says they looked at the pre-exposures a couple of months earlier. And then, the group of professors also looked at conversations a couple of days before the Silicon Valley Bank collapse.

“One thing that was kind of interesting about SVB is that their ticker was SIV,” Cookson said. “And so you could actually distinguish when investors were talking about the bank versus general conversation about where people refer to it as SVB.”

He says when they looked at the time series of events, the investment conversation happened first. The conversation then carried over into a general conversation.

“And we saw that actually people who were tweeting in that community tended to really actually amplify the stock losses during this period,” he said. “Which is notable, because bank run doesn’t happen because investors are talking about a bank. It happens because depositors are communicating with one another.”

Listen to the entire segment.

 

Inside Sources with Boyd Matheson can be heard weekdays from 1 p.m. to 3 p.m. on KSL NewsRadio. Users can find the show on the KSL NewsRadio website and app. 

Read more:

• Parent of Silicon Valley Bank seeks bankruptcy protection
• Justice Dept, SEC probing collapse of Silicon Valley Bank

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