Federal Reserve Says Social Media Partially At Fault For Silicon Valley Bank’s Failure

The 114-page report listed social media-fueled panic as one of the chief factors behind the second-largest bank failure in U.S. history, primarily blaming the collapse on poor risk management at the bank and too loose supervision from Fed supervisors.

The early March run on Silicon Valley Bank “quickly accelerated as social networks, media and other ties reinforced a run dynamic that played out at remarkable pace,” the Fed said.

Also fueling the rapidly spreading panic was the bank’s highly “concentrated network of venture capital investors and technology firms” who accounted for most of the institution’s deposits, withdrawing their money “in a coordinated manner with unprecedented speed.”

Still, it was primarily a “textbook case of mismanagement” among Silicon Valley Bank’s top executives and a failure by the Fed to “take forceful enough action” before the run on deposits as the bank’s cracks grew apparent, Michael Barr, the Fed’s top official in charge of banking regulation, said in a letter accompanying the report.

The report asserted that had the bank regulation requirements that were rolled back in 2018 still been in place, they “would likely have bolstered the resilience of Silicon Valley Bank,” possibly indicating tighter regulations on institutions may be on the way.