2024 Journal of Community Bank Case Studies

2024 COMMUNITY BANK CASE STUDY COMPETITION

before in human history. For banks, this was readily apparent in the SVB and subsequent bank failures. Three large American banks with billions of dollars in deposits suffered bank runs one after another. While there have been many bank runs in the past, what made this particular bank run unique was two things: (1) the medium through which it spread and (2) the speed at which it happened. Social Media as a Medium Social media has a unique strength of being able to connect people and spread messages across wide distances at a speed so far unmatched. Users get an influx of messages from multiple perspectives, some of which are fueled more by fear than fact. On social media, a small group of people who are vocal in posting their opinions can heavily influence how general audiences perceive a situation. A prime example of this was the SVB bank collapse and subsequent bank runs. In our conversation with the INB management team, they pointed out that it was a small group of venture capitalists who spearheaded the initial panic at SVB. This tiny, concentrated group of venture capitalists became concerned after

SVB suffered heavy losses due to rising interest rates. They began to spread their fears through social media posts, which ultimately snowballed enough fear for many SVB depositors to withdraw their deposits. At this point, communicating and calming a panicking group of people is extremely difficult. Public panic can spread regardless of what a bank communicates to their depositor base. Even though SVB communicated why their losses happened, public panic prevailed, since depositors feared that SVB wasn’t being honest when they said they would be able to recuperate their losses. This issue of public perception during a crisis taught INB to focus on preventive measures and careful yet honest communication during panic causing situations. While depositors can be hard to soothe once panicked, preventing a panic in the first place stands to work out best. Speed of Social Media In our interviews with the INB team, they relayed that one of the new lessons they took from the crisis was the realization of how fast bank failures can happen now. Donovan commented that “the speed at which this happens now is greatly amplified. Social media runs 24/7.” But it is not only during a crisis that the speed and always-on nature of social media is a concern: The speed and sheer volume of information flows also cause problems in a bank’s day-to-day operations. First, social media must be monitored regularly. New messages pop up on social media constantly, causing banks to have to constantly keep up with the social media posts that reference them. This

Public panic can spread regardless of what a bank communicates to their depositor base

40