“For start-ups, all roads lead to Silicon Valley Bank,” assured an American entrepreneur to the Wall Street Journal.
Since Friday March 10 and the resounding collapse of this Californian bank, the roads now seem to be leading straight into the wall.
Enough to cast a most threatening shadow over the American lung of the new economy.
But the regulatory authorities - the Federal Reserve, the Treasury Department and the Deposit Insurance Agency (FDIC) - decided to come to the aid of depositors.
They announced, Sunday, March 12, a federal guarantee for the approximately 175 billion dollars kept in the coffers of Silicon Valley Bank on behalf of thousands of start-ups and investors.
One tweet and it starts again
No sooner had this announcement been made, much to the relief of the small world of American high-tech, than another Silicon Valley bank, the Signature Bank, in turn went out of business.
New anguish among investors and business leaders and … new reaction from the authorities who, on the same day, extended their guarantee to the bank accounts of the Signature Bank.
In 48 hours, American finance has experienced a succession of unprecedented turnarounds.
An emotional TGV for bankers and stockbrokers that recalls the darkest hours of the beginning of the 2008 crisis.
But at an even more frantic pace.
The lightning reaction from regulators appears to have succeeded in limiting the economic shock wave for now, but the whole sequence will go down in history as “the first bank run of the social media era”, claimed several media like the Fortune site.
For some observers, this banking debacle was partly triggered by a tweet posted on February 23.
"It's crazy to think that this whole story is potentially due to Byrne Hobart's tweet about his newsletter," said Evan Armstrong, a writer for business site Napkin Math.
Byrne Hobart, a very influential Silicon Valley blogger whose newsletter is followed by most Tech investors, said in late February that Silicon Valley Bank had been “technically insolvent in the last quarter”.
What happened, according to proponents of the fateful bird of doom tweet theory, is that from that message “the whole microcosm of Silicon Valley started watching the news very, very closely. around this bank,” says Fortune.
When the SVB revealed on Wednesday March 8 that it had lost two billion dollars and that it was seeking to raise funds to strengthen its financial health, investors on the lookout began to see red.
“Big names in the sector like Sam Altman [president of Y Combinator, the largest start-up incubator in the United States, editor’s note] and Peter Thiel have sounded the alarm”, underlines Alexandre Baradez, financial analyst for IG France.
It's not all the fault of social networks
Virality of social networks requires, this warning then spread like wildfire on Twitter and other similar services.
In business, calls to withdraw funds from the SVB “have multiplied on Slack [internal messaging service] reports the Wall Street Journal.
I always said that Slack was dangerous and out of control, and now we see the result: this messaging contributed to the collapse of a big bank!”, says Kevin Drum, a journalist renowned for his blog at the intersection between politics and economics.
“There is no doubt that social networks and new technologies have been a tremendous accelerator of the crisis at the SVB”, recognizes Alexandre Baradez.
Not just to feed panic at tweet speed.
Technology has also made the race for bank withdrawals much faster.
The decision to close your account can be made from an application or by email in a few hours.
This is all the more true with a bank like SVB, most of whose customers are ultra-connected, recalls the New York Times.
Nothing to do with the time of “the subprime crisis in 2008, when the bank runs were of a different nature: people moved to the counters and the whole thing could take several days, leaving the authorities a little time to react ”, recalls Alexandre Baradez.
But for him, we must not put everything on the back of social networks either.
“SVB's fate was sealed anyway.
The value of this bank had already fallen significantly last year.
Social networks have simply allowed to plant the last nail in the coffin”, maintains Alexandre Baradez.
Silicon Valley Bank's problems stem less from customer panic than “poor risk management, with too much money invested in assets that have fallen in value in recent months,” he says.
Risk of contagion under control?
The rout of the SVB illustrates the dark side of the power of social networks for the financial markets.
Since 2020, "they had contributed to the exuberance of the stock markets and in particular of certain modes", recalls Alexandre Baradez. These networks had notably amplified support for listed companies in the second or third zone, such as GameStop. Now that the stock market situation tends, they play the same amplifying role.
It remains to be seen whether the action of the authorities will succeed in nipping this beginning of the banking crisis in the bud.
US President Joe Biden wanted to be optimistic on Monday, assuring that the US banking system as a whole “was solid” and that the risk of contagion was controlled.
Indeed, the express debacle of the Silicon Valley Bank demonstrated the need for the authorities to react much more quickly to the beginnings of stock market panics in the era of social networks.
“And we can say that, this time, the regulators have at least demonstrated that they were aware of this speed of propagation”, notes the financial analyst.
But the opening of the US stock market on Monday suggests that this rapid response will not have been enough for everyone.
Several other regional American banks experienced a disastrous start to the session with stock market falls that exceeded more than 70% for some of them
The summary of the
France 24 week invites you to come back to the news that marked the week
I subscribe
Take international news everywhere with you!
Download the France 24 app