Wednesday, 29 May 2024

Global banks.. How did social media contribute to the of the ‎crisis explosion?!‎

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The speed with which depositors fled a Silicon Valley bank this month — withdrawing $42 billion in 24 hours — has left regulators facing a new risk of running banks driven by social media.

New era:

Gone are the days when lines of people outside banks were the defining image of a lender on edge. In today’s digital age, customers can withdraw cash with just a few taps on their phones.

According to Reuters, the spread of reports on social media during one week, starting from the sixth of March, led to the collapse of the Silicon Valley bank, as it advised venture capital firms, including billionaire influence investor Peter Thiel, owner of the “Founders Fund” to withdraw money. From the bank, and by the tenth of March, the authorities directed the closure of the bank.

Trust breakdown:

Swiss bank Credit Suisse, which arch-rival UBS had to bail out in a government-engineered takeover after investor confidence collapsed, is only too well aware of the dangers of social media. Last year, an unconfirmed report on social media drove customers out

Communication speed:

The fact that people can communicate more quickly has changed the dynamics of bank flows and may have changed the way we should think about managing liquidity risk, said Todd Baker, a senior fellow at Columbia University’s Richmond Center.

In the same context, billionaire hedge fund manager William Ackman warned a few days after the collapse of the Silicon Valley Bank that “no bank is safe from the exit of customers” in a world with online bank accounts and social media unless the government gives depositors an explicit ‎ “full access” guarantee  to all their accounts in cash.

Regulators know they are grappling with the possibility of news spreading faster than ever, although it is unclear how they can specifically address the threat of Twitter-fueled panic.

Urgent action:

The decision to insure all bank deposits in the US after the closing of Silicon Valley Bank surprised many. Experts said it shows that the authorities are concerned enough about depositors withdrawing money from other lenders.

Some in the banking industry underestimate the risks of another bank, similar to Silicon Valley, spurred by social media, to collapse.

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