I never thought I would be part of the fastest bank run in history. Late one Thursday evening earlier this month, I received a text message saying that Silicon Valley Bank – our company’s bank – was about to collapse. I read the message three times, let it sink in, and then sent a few messages myself. It was immediately clear what we had to do. Thanks to the bank’s online portal, we collected all our deposits within hours.
It turned out I wasn’t the only one. I was part of a digital herd that received the data at an unprecedented speed and translated it into immediate action in the real world at an extraordinary pace. Hundreds of executives heard of the news of the SVB’s precarious situation and collectively retreated $42 billion in one day. Compare that to the last major U.S. bank run, when customers withdrew $16.7 billion in nine days.
We have baked into our technology the conditions for creating digital herds
The difference is in the 15 years between runs, during which we witnessed the digital services revolution and the takeover of social media. The first accelerated recordings, while the second dramatically accelerated the spread of information. As House Financial Services Chairman Patrick McHenry put it, this was “the first Twitter-driven bank run”. A few years ago I needed an account manager to withdraw large amounts from the bank. Today I just clicked the button on an app.
In other words, we have baked into our technology the conditions for creating digital herds. Until now, their impact on the real world has been prosaic. This time we witnessed that our institutions can get dizzy when the rapid spread of information meets a large group of people with access to a button that generates financial activity in the real world.
Leading anonymous online users to an action is the essence of all digital businesses. The focus of innovation is on leveraging technology to increase efficiency and drive action while shortening analog trajectories.
In my industry, digital healthcare, guiding people through simple digital steps that overcome barriers in the physical world holds the promise of reducing healthcare inequalities. For example, an app that compares prescription drugs to find the cheapest option available can be very cost-effective for low-income people. For 45% of Americans who do not have access to public transport, or the 61 million If you live in a rural area, a digital health service that allows you to do a clinical test at home instead of at the doctor with just a few simple clicks could change your life.
Guiding people digitally can have many benefits for society, with one caveat: it can just as well speed up collective action where instantaneous digital transactions can cause massive social disruption – with disastrous consequences.
We have seen this destructive impact in elections disinformation campaigns that spread like wildfire in 2016 and 2020, and then in the events that led to the January 6 riots. In 2021, we saw the power of the digital herd as a pack of young online investors feed on social media and communication through memes used the Robinhood app to increase the share price of the fading video game company GameStop by 400%. This led to the creation – and loss – of billions of dollars in just a few days. 2022 saw the rise and fall of crypto pyramid schemes fueled by social networks media driven hype and frictionless retraction mechanisms.
The impact of the SVB bank run on our economy and the tech space is still unfolding. But with the benefit of hindsight and the humility of participants in the fastest bank run in history, tech entrepreneurs must recognize the responsibility that comes with our ever-expanding digital power.
Today’s technology can help people travel over mountains and rivers without leaving their front door. But the collapse of SVB made it clear that we need to see ourselves and our products as responsible digital herders and – through a dialogue with regulators – ensure we put in place the right pathways and guardrails to mitigate any potential destructive impact. Otherwise the consequences could be even more damaging the next time the herd goes wild.
