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Did Social Media Speed Up 2023 Bank Runs?

What is a bank run and what causes it to happen? Jonathan Rose, a Federal Reserve historian, discusses what made the bank runs in March 2023 so fast and so large. 1. New technology has sped up banking transactions overall. 2. Social networks allowed depositors to communicate and coordinate their actions. 3. Groups of similar depositors from similar industries (e.g., crypto and tech) may gravitate toward the same financial institutions and become subject to the same types of shocks that prompt them to withdraw funds from their accounts. This last factor is key. The views expressed in this video do not necessarily reflect those of the St. Louis Fed or the Federal Reserve System. Learn more: https://research.stlouisfed.org/publi... 00:00 - Bank runs explained 00:06 - Bank runs of 1984 and 2022-23 00:36 - Understanding the speed and size of these runs 01:30 - How were these depositors similar? Follow us: Twitter:   / stlouisfed   Instagram:   / stlouisfed   LinkedIn:   / stlouisfed   Facebook:   / stlfed   #bankingcrisis #banking #socialmedia #economy Transcript: A bank run is a situation in which a large number of a bank's depositors try to withdraw at the same time. Large depositors were the source of most withdrawals in many of the major episodes of bank runs in American history. They certainly led the withdrawals on Continental Illinois in 1984 and also in the 2023 bank runs on Silvergate and Silicon Valley and Signature and others. Silicon Valley Bank lost 25% of its deposits in one day. Signature Bank lost 20% of its deposits in one day. And First Republic later had a severe run as well. So in 1984, Continental's bank run was called a lightning fast electronic run by Ryan Sprague, the head of the FDIC. It turns out that Continental by 1984 had established electronic connections with its major depositors, which were nonfinancial corporations, but also every type of financial institution you can think of. Continental lost 30% of its funding in 10 days. So compared to Silicon Valley Bank, which lost 25% in one day, it seems kind of slow. But at the time, Continental's run was severe. So federal regulators, state regulators have been calling these historically unprecedented bank runs in terms of their speed and size. Federal regulators have identified a few factors behind the speed and size of the March 2023 bank runs: technology, social media, and the nature of the depositors. To my mind, the nature of the depositors at the banks that came under pressure in March 2023, that was what was most historically unique about the episode. What really stands out about the banks that came under pressure in 2023 is how concentrated their funding was among large depositors in very specific industries. And the industries I have in mind are crypto and tech. What Signature and Silvergate did for large crypto asset firms was that they ran payment networks in which these firms could transfer money to each other inside the bank. And so there were no delays between these payments. They call them instant payments. You get delays when you make interbank payments. But if you transfer money inside a bank, it can be instant because it's just a bookkeeping entry. So as a result, Signature and Silvergate had funding that was very concentrated in the crypto asset industry. Overall, when you look at Signature and Silvergate, you see a picture in which the depositors were likely to behave in a similar way. They came from the same industry, so they were subject to the same shocks. All of them felt the shock of FTX's failure in November. And they also were able to observe each other's actions because they were making payments to each other on these payment networks. So they could see if one of their counterparties left the bank. So you end up having depositors that withdraw simultaneously because of these connections, because of these similarities. I am Jonathan Rose. I'm the historian of the Federal Reserve System and I'm an economist who works at both the Chicago and the St. Louis Feds. Visit stlouisfed.org for more information.