Social media

The curse of virality, from house parties to Silicon Valley Bank 

Last summer, a teenager I know — let’s call her Sarah — threw a pizza party at her parents’ summer house. She invited a dozen friends. So far, so normal. But just before the party started, a friend-of-a-friend of Sarah’s decided to post details of the gathering on social media. 

Within the hour, as Sarah’s parents were ordering the pizzas, their beach house was overrun by hundreds of teenagers, most of them complete strangers. Cue panic from the host, horror from her parents and, eventually, a visit from the local police, who shut the party down. 

Any parent knows the perils of teenage gatecrashers, but what nobody expected in this case was the speed and scale of that mob effect. One social media post had been leveraged into something with almost immediate real-world consequences. It is a lesson that nervous parents (like myself) need to remember. So, too, financial regulators and investors, in the wake of the collapse of Silicon Valley Bank (SVB).

This week, the Federal Reserve announced that it would conduct a probe into its own supervision and regulation of SVB, which will probably take a look at issues such as the failed bank’s capital ratios, business model and interest rate bets. Another aspect the Fed ought to consider is what might be described as digital sociology, namely, how social media has changed the information ecosystem to create this new problem of cyber leverage.

One remarkable detail about the SVB debacle is that, in a few hours last Thursday, about $42bn (one-quarter of SVB’s deposits) left the institution, mostly through digital means. The dash was so rapid that some financiers have dubbed it the world’s first “frictionless bank run”, with the news spreading over Slack, Twitter and WhatsApp. Silicon Valley entrepreneur Alexander Torrenegra later described on Twitter how questions about SVB began to appear at about 9am on Thursday in a group chat with him and “200+ tech founders”. By 10am, some members had suggested “getting the money out of SVB for safety,” he wrote. “I read the messages in a bathroom break. Immediately cancel the meeting I had. Ask my wife, Tania, to wire all of our personal money out to other banks. Call my teams. Ask them to do the same.”

Some say that one initial spark for the stampede may have been a recommendation from Founders Fund, Peter Thiel’s prominent VC fund, that its companies pull their money out of SVB. Thiel himself denies any blame and tells me that he had many millions of dollars of his own money in the bank when it failed. Either way, as rumours whizzed around cyberspace, each social media post had the same impact as shouting “fire” in a crowded cinema, but on an infinitely larger scale. This is a vastly accelerated form of the analogue bank runs we witnessed in the 20th century, when people got news from TV or newspapers and then physically queued outside banks for hours.

How should we respond? In finance, there are steps which regulators could try, such as banning people from posting on social media about a looming banking failure or making it harder for depositors to withdraw funds via apps in a crunch. But I doubt whether this would be popular among digital natives, who have grown up assuming they have the right to do whatever they want with their phones. Even if a solution could be found to offset smartphone bank runs, the bigger problem remains: can we control the high-speed leverage of viral social messaging in other spheres of our life? After all, global information flows have doubled since 2000, and internet connections are now jumping about 25 per cent each year, according to a new report from DHL and NYU Stern.

The phenomenon is already poisoning politics, in that social media posts regularly stoke fury and protests, while cutting off balanced debate. It also affects consumer goods, where viral campaigns can mushroom at unprecedented speed, popularising some products while leaving others ignored. (Brands such as the Dove beauty products and IHOP restaurant chain are some which have ridden this wave.) 

Silicon Valley Bank collapse

Explore the latest news and analysis on the fallout from the failure of Silicon Valley Bank, the lender to start-ups which became the second-largest bank collapse in US history

It shapes the world of entertainment too. The days of waiting for a weekly television show such as Top of The Pops to determine what is cool seems peculiar for younger generations. Instant gratification, fame and fury is what drive trends today. Of course, since SVB was based in Silicon Valley, where the tech that has enabled this viral leverage was created, its leaders should have understood this better than anyone else. So, too, the San Francisco Fed. 

But the sad truth is that until you have experienced a cyber mob, it is hard to imagine the consequences. Thankfully, Sarah now knows to be very careful when sharing details about future pizza parties. I fear that the tech crowd is unlikely to be quite so savvy.

Follow Gillian on Twitter @gilliantett and email her at

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