The collapse of Silicon Valley Bank, the second-biggest bank failure in U.S. history, took place over less than 48 hours.

Customers withdrew $42 billion — nearly a quarter of the bank’s total deposits — within a single day last week.

The speedy bank run has raised questions about the fragility of financial institutions in a digital environment marked by easy cash withdrawals and the spread of information on social media and other spaces online, where panic among a few can grow into a stampede for the exit.

Such a possibility, known as a digital bank run, heightens the risk of a sudden, widespread cash withdrawal, especially among a group of depositors who share an industry and social ties — like the depositors in Silicon Valley Bank, experts told ABC News.

MORE: What to know about FDIC insurance and how your money is protected

“This was the first Twitter-fueled bank run,” Rep. Patrick McHenry, R-N.C., the chair of the House Financial Services Committee, said in a statement days after the fall of Silicon Valley Bank.

The group of depositors in Silicon Valley Bank was made up of a relatively small set of venture capital firms, tech startups and other large investors.

After a woeful financial report last Wednesday set off concern, some of the depositors discussed their reactions in WhatsApp and Slack groups devoted to startups, the Wall Street Journal reported.

MORE: Is this a banking crisis? What to know about the Silicon Valley Bank collapse

Meanwhile, several prominent venture capitalists and other major investors voiced their concern on Twitter, amplifying fears of a collapse.

Michael Burry, an investor best known for predicting the subprime mortgage crisis in 2008, warned in a now-deleted tweet: “It is possible today we found our Enron.”

On Thursday, shares of Silicon Valley Bank fell 60% in response to concern about the bank’s distressed financial position.

By the early afternoon, the sudden decline of the bank took over online discussions among startup founders, according to entrepreneur Alexander Torrenegra.

“All of my chats with tech founders in the US light on fire with what’s happening,” Torrenegra recounted on Twitter. “Obviously, we have a bank runoff. Surreal.”

Founders Fund, a venture capital fund led by billionaire investor Peter Thiel, withdrew all of its deposits that day, Bloomberg reported.

MORE: A timeline of the Silicon Valley Bank collapse

Since the bank is FDIC-insured, depositors were guaranteed protection of up to $250,000 in funds for different types of accounts held in the event of a collapse. However, many depositors in Silicon Valley Bank held accounts that far exceeded $250,000, raising the stakes for those who failed to remove their funds before a potential bank failure.

“Because information comes out faster, you get the information in real time, it’s widespread and it leads people to take action,” Campbell Harvey, a finance professor at Duke University, told ABC News. “If you’re the first group out, you get 100% of your money and if you’re the last group out, you potentially get zero.”

Hilary Allen, a professor at the American University Washington College of Law who studies banking regulation, said the relatively small and tight-knit community of bank depositors helped accelerate the downfall.

“Virtually all of the depositors were from the same community and a community that was very online,” Allen told ABC News. “If you’ve got something like Silicon Valley Bank, where the vast majority of depositors are in the tech industry and are very connected and all speaking to one another, those are the circumstances in which a panic can really flourish very, very quickly.”

To be sure, investors who fled the bank held well-founded concerns about its financial health.

Silicon Valley Bank had loaded up on investments into long-term Treasury bonds and mortgage bonds, which typically deliver small but reliable returns amid low interest rates. As the Federal Reserve aggressively hiked interest rates over the past year, however, those holdings lost significant value.

A day before the major cash withdrawal, Silicon Valley Bank announced that it had lost $1.8 billion on the sale of those distressed bonds.

“This isn’t purely a bank run,” Itamar Drechsler, a professor of finance at the University of Pennsylvania’s Wharton School of Business, told ABC News. “The bank had a very fundamental problem.”

MORE: Why are some Republicans blaming bank failures on ‘woke’ policies?

Still, the speed and reach of online communication likely accelerated the bank’s collapse, Dreschler said.

“Like a crowd that moves together very fast, if it decides to exit someplace, there’s a problem,” Dreschler said. “If we coordinate more through social media and other information technology, that can cause the crowd to move a lot faster.”

While digital banking allows for quick and easy withdrawals, the availability of such a service likely contributed little or not at all to the bank run, since such technology has existed for many years without significant issue, the experts said.

“People have been talking for a while about whether the speed of digital banking itself would contribute to bank runs,” said Allen, of American University. “My view on that is it has been relatively easy to get your money out for quite a while now. I’m not sure how much of a difference that has made.”

In response to the outcry and fearing wider spread of the crisis, the FDIC, Treasury Department and the Fed ultimately took a major step on Sunday, telling depositors in Silicon Valley Bank that the FDIC would protect all of their funds, including those that exceed the $250,000 limit.

MORE: Silicon Valley Bank collapse: Treasury, Fed and FDIC announce steps to ensure deposits will be paid in full

Later that day, the Fed announced an emergency lending program to cover the deposits at issue and restore wider confidence in the financial system.

The spread of panic online may have contributed to the federal government’s decision to take such extraordinary action and prevent uncertainty from seeping further into the financial system, Allen said.

“Was that part of the concern that motivated the Biden administration to step in because it was worried that the very public venting on Twitter might transfer to other banks, as well?” she asked.

MORE: Justice Department, SEC probing collapse of Silicon Valley Bank: Sources

On Monday, in a morning address from the White House, President Joe Biden sought to reassure Americans that the banking system was sound.

“Americans can rest assured that our banking system is safe,” Biden said. “Your deposits are safe. Let me also assure you, we will not stop at this. We’ll do whatever is needed.”

Biden also addressed the issue that day in a Twitter post.

source

Federal Deposit Insurance Corporation (FDIC) announced SVB’s collapse on Friday

House Speaker Kevin McCarthy, R-Calif., on the collapse of Silicon Valley Bank, the impending debt ceiling showdown, the “Lower Energy Cost Act” and the decision to release Jan. 6 footage to Fox News’ Tucker Carlson.

House Speaker Kevin McCarthy, R-Calif., said Sunday that the best way to move forward from the Silicon Valley Bank collapse announced by the Federal Deposit Insurance Corporation (FDIC) two days earlier might call for a larger bank to make a purchase.

“I have talked with the administration, from Jay Powell and Janet Yellen. They do have the tools to handle the current situation. They do know the seriousness of this, and they’re working to try to come forward with some announcement before the markets open,” McCarthy told Fox News’ Maria Bartiromo on “Sunday Morning Futures.”

McCarthy said he hopes that announcement could come the same day, so the markets can “cool” and move forward quickly.

“This bank is a unique bank. They do have assets, they have an amazing clientele. It’s very possible for someone to purchase this bank. I think that would be the best outcome to move forward and cool the markets.” he continued.

Responding to Bartiromo’s question regarding the potential for a larger institution to purchase Silicon Valley Bank, McCarthy said there’s “great potential” and that the prospect of purchasing could be “attractive” to some.

“Silicon Valley Bank has a lot of assets. It’s just where the capital is currently at,” he said. “But it is attractive for someone to want to purchase it; it’s just the timeline on where to move forward, and the [Biden] administration has tools to deal with this.”

Speaker of the House Kevin McCarthy, R-Calif., conducts a news conference at the Capitol on Jan. 12, 2023. (Tom Williams / CQ-Roll Call Inc. via Getty Images)

But the larger theme surrounding the bank’s collapse leaves others wondering about the country’s economic health under the Biden administration.

Some financial experts and business gurus, including Home Depot co-founder Bernie Marcus, allege the bank’s collapse indicates tough economic times, as the collapse signals the worst U.S. financial institution failure in nearly 15 years.

“I can’t wait for Biden to get on the speech again and talk about how great the economy is and how it’s moving forward and getting stronger by the day. And this is an indication that whatever he says is not true,” Marcus said Saturday on “Cavuto Live.”

“And maybe the American people will finally wake up and understand that we’re living in very tough times; that, in fact, a recession may have already started. Who knows? But it doesn’t look good,” he continued.

“Shark Tank” star Kevin O’Leary also criticized “weak management” for the collapse on Friday, telling Neil Cavuto that the establishment needed “institutional diversification.”

Others, however, maintain that the event could have been an isolated incident.

SO FAR 2 OTHER BANKS HAVE COLLAPSED SINCE!

By Taylor Penley | Fox News