Was Banking Crisis Fueled by Social Media?
Lawmakers discussed potential regulatory shifts at the ABAs' Washington Summit following the failures of two major banks. Learn why.
Lawmakers discuss potential regulatory shifts at community banking group’s annual summit.
Legislators struggling to figure out what to do as the result of two recent bank failures are confronting a never-before experienced event: a bank run caused by social media.
Key lawmakers addressing the American Bankers Association’s Washington Summit on Wednesday pointed their fingers at several sources to blame for the failure of Silicon Valley Bank.
Impact of Social Media
But there was wide agreement that a new bogeyman had emerged as one of the culprits: social media posts about the troubled bank.
“I don’t think we know what to do with that,” Senate Banking Chairman Sen. Sherrod Brown, D-Ohio, told the bankers.
“There was a twitter run as much as anything else,” added Sen. Tim Scott, R-S.C., the ranking Republican on the Banking Committee.
On the other side of Capitol Hill, House Financial Services Committee Chairman Rep. Patrick McHenry, R-N.C., agreed, telling those attending the summit, “This was the first twitter-fueled bank run.”
Debate Over Response to Bank Failures
While the three agreed that social media was partially to blame for the collapse, they diverged when it came to additional sources for the failure as well as how to avoid others in the future.
The House and Senate committees plan to hold hearings next week on the failures of Silicon Valley Bank and Signature Bank.
“We’ll hear from regulators, we’ll hold executives accountable, we’ll examine deposit insurance coverage issues, we’ll look at the role of social media, we’ll consider legislation to strengthen guardrails,” Brown said. “And I’ll continue pressing regulators to do a full review of the bank failures.”
He added, “I hope that the banking industry won’t be an obstacle.”
But Scott countered that he is not sure new guardrails are needed, saying that regulators had identified Silicon Valley Bank as a troubled bank.
“It’s very clear that the regulators had what they needed to do the job,” he stated. “They just didn’t.”
McHenry said lawmakers should resist the temptation to construct new guardrails. “In a moment like this, legislators want to legislate,” he said, noting that regulators missed danger signs at the bank.
“You can’t legislate competence,” he added.
But Rep. Maxine Waters, D-Calif., asserted that legislation may be needed. For instance, she said the federal government should be able to “claw back” salaries of officers in such cases.
On another subject, ABA President/CEO Rob Nichols pressed the lawmakers on possible legislation that would provide credit unions and banks with a regulatory safe harbor for providing financial services to marijuana-related businesses in states where marijuana is legal.
During the last Congress, the House passed such legislation and supporters attempted to attach it to unrelated, must-pass measures. However, those efforts were blocked in the Senate.
Brown said he hopes the Senate can consider the legislation “fairly soon,” but added that the banking crisis must be the top priority.
Scott agreed that the bill may be considered, but that it must follow “regular order,” a term that refers to legislation moving through the normal legislative process and not being attached to unrelated measures.
“Both sides want to go through regular order and I think it will happen this Congress,” he said.
But McHenry threw cold water on the legislation, saying that instead, Congress should decide whether to make marijuana legal.
Referring to the marijuana banking measure, McHenry said, “It’s not on my agenda. It’s not a priority for me.”