What’s going on?
The swift downfall of Silicon Valley Bank (SVB) over the weekend shows that things have changed drastically since 2008’s global financial crisis. The major difference: how quickly social media can spread industry-shaking information.
Why should you care?
The amplification effect
First off, SVB’s collapse serves as an unfriendly reminder for central banks and policymakers that information can travel faster than ever before. That means that any low-grade rumor, policy decision, or whisper of fear could potentially cause uproar in the markets, sending shockwaves that rattle even huge financial institutions.
Daring to doubt
Second, retail investors need to learn that the professionals don't have a crystal ball to tell them what's going to happen next. Sure, they’ve got access to smarter technology and more data and information, but they analyze the same scenarios and news headlines as regular folk. They’re not oracles. After all, lots of prestigious financial institutions were giving SVB a “buy” rating just days before their demise, and regulators overlooked a fundamental risk management failure. Even Jerome Powell, chair of the Federal Reserve, said the banking system was free of systemic risks just last week.
How should the industry respond?
Times of crisis lend authority and credence to clued-in institutions that focus on the three pillars of empowered investors: access, education, and trust. Retail investors have all kinds of advantages that become especially valuable when markets are heaving – like the luxury of long-term thinking. That means the industry can use the collapse of SVB as an opportunity to educate folk about how to make sound, well-spread, and sensible investments – something we do day in, day out at Finimize.
Secondly, institutions need to sit up and take note of how they’re perceived, how they communicate, and how they’re talked about on social media. Gone are the days of muffled whispers and back-room grumblings, now that every tremor’s liable to be amplified by the Twitter megaphone. This time around, it was VCs and founders who rattled SVB – but retail investors are increasingly a force to be reckoned with, and the ability to engage with them could decide which institutions thrive in the new age of market-shaking social media.