One prevalent narrative spreading in Silicon Valley is that we are witnessing a new type of bank run — a “Twitter run” — driven by technological innovations in banking and direct messages on social media. Nervous venture capitalists encouraged their tech-startup clients to abandon their long-time, valued business partner, Silicon Valley Bank SIVB, -60.41% en masse, so the narrative goes.
Why is that? It is not technology per se that drives the speed of a run, but rather how quickly people agree on a new set of beliefs about the state of banks. When enough people believe that the world is different today than yesterday, that’s when runs happen. Things were no different in the past. Take the case of the fruit-fly panic of 1929. At that time, in early 1929, Florida’s economy was hit by an unexpected, massive fruit fly infestation that led to a statewide quarantine and spelled doom for growers of oranges, grapefruit, and many other crops. Florida residents realized that nearly all banks in the state lent heavily to citrus growers, which led to concern about the banks’ solvency and the safety of their deposits.
Another classic example of the speed at which panics arose in the past occurred in 1932 in Chicago. When city officials announced that Congress had rebuffed their request for $80 million in aid to the city, the bank runs began, with newspapers reporting that “even healthy banks were affected.” This confidence-bolstering game should sound quite familiar to those following events of the past week. Today’s playbook thus far includes a new lending facility aimed at providing cash-poor banks with the liquidity they need to stave off runs , interbank cooperation to stave off problems at First Republic Bank FRC, -47.11%, and pronouncements by the FDIC and Fed that uninsured deposits will be covered at SVB and Signature Bank SBNY, -22.87% — all straight out of the historical playbook.
Phone calls.