Following the liquidation of Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank, the financial market has been engaged in an incessant evaluation of contagion risks and vulnerabilities within the banking sector. The aftermath of this tripartite collapse has triggered a period of intense scrutiny and a quest for a deeper understanding of the crisis that has unfolded.
Factors Influencing the Current Banking Crisis
While the initial fears were reminiscent of the 2008 crisis, the current financial tensions are markedly different, influenced by three factors that did not carry as much weight earlier – social networks, technology, and regulation.
Social networks like Twitter have contributed to propagating and amplifying uncertainty. The massive impact of social media as a communication channel cannot be ignored, as it plays a crucial role in shaping the reputation of companies and influencing public perception.
Moreover, the focus on themes and hashtags can direct attention to a particular situation and lead to significant outcomes.
Social Networks Amplifying the Banking Turmoil
Jane Fraser, CEO of Citi, highlighted the power of social media when she said, “With a couple of tweets, the fall of Silicon Valley Bank has happened much faster than at any time in history. Social media is revolutionary; it’s a tipping point.”
Her view is shared by Paul Donovan, Chief Economist at UBS, who said that this is the “first banking crisis of the Twitter generation.”
In today’s times, a company’s reputation is more relevant than ever before, and it can outweigh other rational factors. Recent cases illustrate the potential for communication tools to create situations of greater weakness.
The pressure on banks has been enormous, as seen in the dramatic fall of First Republic Bank’s stock market value, Credit Suisse’s share price plummet, and the rescue of UBS.
The Role of Technology in Enabling Rapid Deposit Leakage
Apart from the impact of social networks, the ease of withdrawing deposits in seconds through online banking adds another technological component. Customers can access their accounts from anywhere and anytime, making it easier for them to close an order in moments of chaos and uncertainty.
Consequently, firms can suffer significant cash withdrawals in a matter of hours, leading to deposit leakage.
Tighter Regulation and Lower Risk
However, unlike 15 years ago, the banking sector faces higher scrutiny and tighter regulations. The European Union has implemented banking regulation to ensure greater supervision, increased financial stress tests, and higher capital requirements, with leverage in the sector significantly lower than before.
The argument that systemic risk is building up in the financial sector is contested by Bob Parker, an advisor to the International Capital Markets Association, who believes that recent problems have arisen in specific portfolios and cannot be extrapolated to the industry as a whole.
Moreover, Andrea Enria, Chairman of the Supervisory Board of the European Central Bank (ECB), emphasizes the diversification of deposits in European institutions and their liquidity, which has prevented the current situation from escalating into a systemic crisis.
The Lack of Confidence
The current situation has been weighed down by the lack of confidence that has led to deposit leakage and imbalances in banks’ balance sheets. However, customers who had confidence in the banks have not withdrawn their deposits, emphasizing the importance of confidence in the financial sector.
José Manuel Campa, President of the European Banking Authority (EBA), cautioned against complacency, but believes that the economic situation is far from that of 2008.
With input from CNBC.

Patrick Bannett is a profound writer and content producer embarking on his digital journalism journey with Global Web Wire. He is knowledgeable on various daily life topics, including politics, personal finance, travel, lifestyle, and relationships. Apart from writing, Patrick is also an accomplished communicator and networker. He always seeks new opportunities to collaborate with like-minded individuals and businesses. Bannett enjoys hiking, practicing yoga, and exploring new cultures when he is not writing. Bannett holds a Ph.D. in English and Communications and continues expanding his knowledge through ongoing education and research.
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