March, 22 2023

Banking March Madness: Communications and technology accelerated SVB & Signature Bank failures.

Old issue. Classic run on the bank, plain and simple. But it’s not the entire story.

The failure of Silicon Valley (SVB) and Signature Banks was created by having a large bond portfolio with long-term bets, funding short-term deposits with long-term assets. It is much more complicated, but simple and boring are better.

Old issue. Classic run on the bank, plain and simple. But it’s not the entire story.

The failure of Silicon Valley (SVB) and Signature Banks was created by having a large bond portfolio with long-term bets, funding short-term deposits with long-term assets. It is much more complicated, but simple and boring are better.

There is plenty of blame to go around. However, it seems we go through a bank crisis every 12 to 15 years … but this one, as opposed to those in the past, was accelerated by instant digital commentary and communications.

A significant difference in this bank March Madness, versus the crises of old, was the speed and magnitude in which deposits vanished.

Institutions, high net worth individuals and other customers withdrew $42 billion in a single day. Even by today’s Congressional wasteful standards, this is a substantial amount of money.

Do you think those withdrawals were accelerated by deploying online banking, particularly mobile, in the world’s technology mecca? You bet. That was something no one considered when internet banking was introduced. Other communications issues also contributed to the demise.

You Live by Tech, You Die by Tech

Bank runs throughout history were spread as lines of people formed outside bank branches, financial rumors spread through newspapers, across trading desks, in phone conversations and perhaps email. It took days.

Today, social media is a part of everyone’s life. In January 2021, a Pew Research study showed more than 70 percent of people now get some news input from social media.

Alarms sounded when SVB came clean about its huge loss in an 8K filing on Wednesday, March 8. Silicon Valley VC financial prodigies panicked and advised their portfolio companies to move banking relationships, which caused SVB to pay out deposits by liquidating their bond portfolio at significant losses.

And these public relations geniuses shot themselves in the foot, by then posting comments and some jokes about the situation in the Twitter public square and other chat groups. Later, several wise VC leaders called for calm, but it was far too late as the damage was done.

Even House Financial Services chair, Patrick McHenry (R-NC) described the catastrophe as “The first Twitter fueled bank run.”

The irony is tech customers and friends quickly abandoned their good neighbor SVB, which had been the heart of the technology arena for almost 40 years, the go-to bank for loans and cash management, providing counsel and seed money to grow venture capital firms and their portfolios.

Public square changed. Now digital, swift and impactful.

The clock on advancing technology cannot be pushed back, as we do with daylight savings time. Leaders must understand the law, as well as how technology has advanced the culture.

Revelations surfaced these past months over US government censorship of social media information on health and political issues.

To inflame censorship matters again, on a Zoom call Sunday, March 12—with Fed, treasury, bank regulators and elected officials—Senator Mark Kelly, (D-AZ), suggested that government officials work with social media companies to censor information that could lead to a run on the bank.

Thomas Jefferson said, “When people fear the government there is tyranny. When the government fears the people there is liberty.”

When you are tagged with a speeding ticket, you are required to take a course. Learn the information… but until you do, you cannot drive. Senator Kelly needs a lesson to understand the Bill of Rights, as well as basic finance, or resign.

“What we’ve got here is a failure to communicate”

The villainous actor Strother Martin emphasized this classic movie line in Cool Hand Luke.

In the middle of the world’s greatest innovation and technology hub, experts appeared to have little understanding of digital’s instant impact, compounded with executive arrogance and greed, as well as only minimal stakeholder communications to: customers, investors, employees, regulators, media and other important groups.

The water torture of drip, drip, drip of information on many issues, is not a way to build relationships and communicate to important stakeholders.

How many banks are now communicating on Twitter with customers and investors about what they are doing in this current environment to protect client assets? Guess? Now, many. But before last week, not many at all.

“The difference between mere management and leadership is communication.” —Winston Churchill

No bank CEO wants a communications or leadership crisis of confidence … especially in this environment. And shooting out now on Twitter how terrific your bank is, actually draws away and questions management credibility.

So, what can be done regarding communications and public policy? Following are simple actions to foster credible leadership.

  • C-suite executives must participate and create knowledge, understanding and show leadership, as well as oversight of communications, especially in social. As I said in my co-authored book, Digital Assassination, Protecting Your Reputation, Brand or Business Against Online Attacks: “Age needs to approach technology with greater skill, while youth need to approach technology with greater wisdom.”
  • Create an active annual plan to communicate to all constituents (cited above). Consider these documents opportunities that spotlight essential information, messages and strategy.
  • Regulatory disclosures should be thorough, not minimalistic. Different, somewhat unconnected people in organizations write various public documents. All have different disciplines. Coordinate writing to include the same actual language descriptions and key messages. If you analyze documents frequently, you will find discrepancies… and so will your investors.
  • Write documents as if you are speaking to freshman college students. That keeps language easy to read and provides an opportunity to think. When complete, read the entire document and ask “What are the two or three take outs that a reader—not you, or another member of management—will remember? Are the company’s overall messages evident?”
  • Importantly, management or employees interacting with stakeholders cannot be caught flat-footed on announcements and disclosures, they need to be coordinated. That’s exactly what did not happen in SVB.

Financial Community Call to Order

When I was on the Management Committee of the New York Stock Exchange, we brought the financial community together several times with Blue Ribbon Panels and advisory groups to solve significant issues.

The Fed now needs to take a serious review of modern bank portfolios—but not do it alone. Call together diverse financial leaders in a blue-ribbon alliance to discuss this changing and challenging arena. Let the group recommend what needs to be changed, what needs to be eliminated, and what’s new that needs to be put in place.

Bank March Madness will happen again, perhaps not by next March, but these steps can help mitigate some risk.

About the Authors:


September, 5 2023

Unlocking the Power of Artificial IntelligenceUnlocking the Power of Artificial Intelligence

Today, artificial intelligence (AI) stakes are colossal with its capability of fabricating any reality whatsoever. Boards and management must be at the forefront of understanding the ethical adaptation of this advancing phenomenon, as well as grasp and embrace the depth and breadth of this all-encompassing technology, how it is changing business … and why ethical oversight is necessary. The article  outlines five key action items for establishing a code of conduct for use of AI that will be vital to protect company brands and reputation.


May, 22 2023

Agita. Do you feel it too? It’s the relentless pounding on our senses that leaves us feeling uncertain and uneasy

The incessant onslaught of news and promotional messages could be undermining trust and causing anxiety.