U.S. Bank Collapse: DigiTech, social media escalate failures, cause havoc
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The spectacular speed at which Silicon Valley Bank collapsed has prompted global fears of a wider crisis in the sector with many questioning whether digitization and social media have introduced entirely new threats to the financial world.
Will the recent bank failures in the U.S. have a domino effect, triggering more bank runs? How are we to cope with this new downside of the digital revolution?
To get an insight into the U.S. banking crisis, CGTN spoke with Richard Turrin, veteran investment banker and expert on digital fintech and the author of "Cashless: China's Digital Currency Revolution."
CGTN: The most stunning, and shocking, aspect of the current crisis is the speed at which the banks fell. At the Silicon Valley Bank – $42 billion were withdrawn within 24 hours! Are Americans losing trust in the banking system?
Richard Turrin: This is the most important thing for people to understand. The nature of a bank run has fundamentally changed. What we saw at Silicon Valley Bank is the first true digital bank run. Now, let me explain why. The first part of the digital component was that social media was part of the bank run. People became hysterical and panicked over a Silicon Valley Bank, partially through Twitter and other social media apps. So, we haven't had that before. That's something very, very new.
The second crucial part is that we saw this massive, as you said, $42 billion move within 24 hours. That's half a million dollars a second. So, when we think of bank runs in the old movies, we think about people standing in line, waiting to get cash from their bank. Now we have Twitter causing the panic. And we have people who are connected to the bank digitally that can move their money in a heartbeat.
CGTN: Do you foresee similar bank runs on other U.S. banks?
Richard Turrin: Now, we've seen something called meme stocks where the stock is a meme and people buy it not because of the value of the stock, but because of the stocks becoming a meme on social media. Now, this is going to take a darker turn where we have something that I’d like to call meme bank runs. Now, what happens when people get panicked on social media and the bank is actually sound, the panic leads to a sell-off from a sound institution. And that's something brand new. And that's why this is really new territory. And that is critical for people to understand.
Be very careful who you believe when you were on social media platforms. This weekend, there were people involved in the finance industry who had one person in particular who had 700,000 followers on Twitter. He tweeted that everybody should go to the bank over the weekend and withdraw all their money. This is not for Silicon Valley Bank. He told every one of his 700,000 people, and I hope nobody listened to him but, he said “go to the bank and take your money out.” And that's terrifying because we have to be very careful who we choose to believe on social media platforms. And you can really imagine a smaller bank that is sound, that has no financial problems, being attacked!
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