Current:Home > StocksSilicon Valley Bank's fall shows how tech can push a financial panic into hyperdrive-Angel Dreamer Wealth Society D1 Reviews & Insights
Silicon Valley Bank's fall shows how tech can push a financial panic into hyperdrive
View Date:2024-12-23 15:48:35
Say "bank run" and many people conjure black-and-white photos from the 1930s — throngs of angry depositors clamoring for their money. But the sudden collapse of Silicon Valley Bank and Signature Bank shows how in an age of instant communication and social media, a financial panic can go into hyperdrive, facilitated by the ability to make instantaneous bank transfers and withdrawals.
How fast did it happen? Consider that when Washington Mutual experienced a run as it collapsed in September 2008, depositors withdrew $16.7 billion over a 10-day period. By contrast, customers at Silicon Valley Bank tried to withdraw $42 billion — more than twice as much — in a single day, last Thursday.
"You have transactions that can be done much faster ... and get cleared much faster," says Reena Aggarwal, the director of the Psaros Center for Financial Markets and Policy at Georgetown University.
"So, everything speeds up," she says. "I think that's partly what happened here. But at the end of the day, it's the underlying problems at the bank that caused this."
"All of that obviously makes this happen very quickly," Aggarwal says.
Mohamed El-Erian, an author and chief economic advisor at the financial services giant Allianz, tweeted that "supersonic speed of information flows" in an era of "tech-enabling banking" contributed to the rapidity of developments. Meanwhile, OpenAI CEO Sam Altman, referring to the bank collapses that preceded the Great Recession, tweeted on Sunday that "The world has changed since 2008; the speed of a cascade could be very fast."
Regulators stepped in on Friday to close Silicon Valley Bank after it was forced to take a $1.8 billion hit when it dumped some long-term U.S. treasuries. The news spread quickly, sending jittery depositors — among them companies such Roku and a slew of high-value startups — scrambling to withdraw cash and causing the bank to go under. New York's Signature Bank, heavily exposed to cryptocurrencies and the tech sector, followed suit in short order over the weekend. Silicon Valley and Signature are the second- and third-largest bank failures, respectively, in U.S. history.
On Sunday, the federal government launched an emergency program to curb any possible contagion from the bank failures. In a joint statement, Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corp. Chair Martin Gruenberg pledged that Silicon Valley Bank and Signature Bank depositors would have access to all their money. A third financial institution, First Republic Bank, is teetering amid concerns about its high reliance on unsecured deposits from wealthy customers and businesses.
Jonas Goltermann, a senior economist at Capital Economics in London, agrees that social media has helped drive the bank runs in recent days. Social media has become interwoven into our social and financial lives, he says.
"That wasn't the case even 15 years ago," Goltermann says, referring to the 2008 financial meltdown.
But there's a possible upside to the lightening-fast transfer of financial information, according to Georgetown's Aggarwal.
"In terms of a run, you have to get from one equilibrium point to another equilibrium point," she says. In other words, the system needs to find its balance.
During the Great Depression, for example, coming to grips with the economic situation took a lot of time because the flow of information was slower.
Today, that process is sped up. "I think it's better to come to that new equilibrium sooner rather than bleed through it over days and weeks and months," Aggarwal says.
veryGood! (59)
Related
- Utah AD Mark Harlan fined $40,000 for ripping referees and the Big 12 after loss to BYU
- PG&E bills will go up by more than $32 per month next year in part to pay for wildfire protections
- Max Verstappen unimpressed with excess and opulence of Las Vegas Grand Prix
- Man accused of abducting, beating woman over 4-day period pleads not guilty
- AP Top 25: Oregon remains No. 1 as Big Ten grabs 4 of top 5 spots; Georgia, Miami out of top 10
- New York will automatically seal old criminal records under law signed by Gov. Kathy Hochul
- Why Drew Barrymore Has Never Had Plastic Surgery
- New York will automatically seal old criminal records under law signed by Gov. Kathy Hochul
- Early Black Friday Deals: 70% Off Apple, Dyson, Tarte, Barefoot Dreams, Le Creuset & More + Free Shipping
- Michigan drops court case against Big Ten. Jim Harbaugh will serve three-game suspension
Ranking
- US Diplomats Notch a Win on Climate Super Pollutants With Help From the Private Sector
- An eco trio, a surprising flautist and a very weird bird: It's the weekly news quiz
- New York will automatically seal old criminal records under law signed by Gov. Kathy Hochul
- Syria’s president grants amnesty, reduced sentences on anniversary of coup that put father in power
- Chet Holmgren injury update: Oklahoma City Thunder star suffers hip fracture
- Bengals QB Joe Burrow leaves game against Ravens in 2nd quarter with wrist injury
- 2 environmentalists who were targeted by a hacking network say the public is the real victim
- College Football Playoff concert series to feature Jack Harlow, Latto and Jon Pardi
Recommendation
-
The View's Sara Haines Walks Off After Whoopi Goldberg's NSFW Confession
-
‘Bring them home': As the battle for Gaza rages, hostage families wait with trepidation
-
The Oakland Athletics' owner failed miserably and MLB is selling out fans with Las Vegas move
-
Ghana reparations summit calls for global fund to compensate Africans for slave trade
-
Groups seek a new hearing on a Mississippi mail-in ballot lawsuit
-
Powerball winning numbers for Wednesday drawing: Jackpot rises to $280 million
-
Police rescue children, patients after armed gang surrounds hospital in Haiti
-
Nevada to pay $340,000 in settlement over prison firefighting conditions