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Was the second-largest bank failure in the history of the US caused by a communication failure?

Picture credit: Depositphotos

A week after Silicon Valley Bank’s failure, there are countless articles and analysis written about what went wrong at SVB. I am no expert to weigh in on the financial details or poor risk management of SVB, but from a communications perspective, I can’t help but think if things could have gone differently had they not communicated so poorly.

SVB made the sensible decision to strengthen its financial position with a capital raise. While one can strongly doubt SVB’s investment strategy, it was not out of the ordinary. So why then did SVB collapse in just two days (the second largest bank failure in US history)?! (For context, the largest, Washington Mutual in 2008 took place over the course of 8 months). 

Here’s how their communications failed:

  • What they said (or didn’t say): When SVB put out their press release, reporting a big  (but not disastrous) loss, it was all numbers, no narrative. Not once did the press release mention a reason for the capital raise, or give any further context or reassurance about the company’s health. The press release was full of jargon, targeted at shareholders (seemingly to protect their stock price), while the lack of information spooked investors and clients. No one understood what this news meant, and there was no further explanation… which caused panic. SVB’s stock plummeted, clients lost trust and pulled out their money. 
  • When they said it: The timing of their press release could not have been worse. The tech community (their customers) was already anxious about “crypto bank” Silvergate shutting down operations. Then SVB put out their press release on the same day. Context matters, as particularly in uncertain situations, people compare  parallel events to make sense of it and look for things that signal a larger trend. 
  • How they said it. SVB initially gave hardly any framing at all. The press release was all jargon, no story. Then they stayed quiet, which fueled the viral panic on Twitter. And when the CEO did speak, his “stay calm, don’t panic” message took people from worried to right out panic, because that’s the only thing they will hear. Tell any human to calm down when they are annoyed and I can assure you they will be furious.
  • Who their key audience was. Their press release was targeted at the financial markets (they would not be the first ones to prioritize shareholder value, would they?), not at their customers. Some of whom are the most influential people in tech, with equally influential twitter accounts, telling startups to get out their cash immediately. SVB should have prioritized communications with their key stakeholder, the tech and startup community, who are very active online and on social media.

SVB was in a weakened but not alarming condition. Then they dropped news that was likely to cause fear and confusion in the current economic environment. But it was the lack of context, poor timing, delayed communications to customers, and panic-inducing messaging that spiraled this bank run.

While one can argue that investor communications are always dry and full of jargon, there are things they could have done (and that any startup should learn from). For example: To control the narrative, SVB could have done an exclusive media interview to provide more context. Or host a press conference right off the bat of the release, to get their key message through and instill trust with both investors and customers. Or have a (crisis) communications plan in place. 

Look, SVB might have crashed anyway given their poor investment strategy, but its nonexistent communications strategy sealed the deal. The SVB collapse and developments over the past week was for me a good (if not sad) reminder of how important communication is, and should serve as an example of “how not to do it” to startups. While good communications can never save a bad situation, bad communications certainly did kill a potentially recoverable situation.

Lize Hong is an independent communications strategist, who has ideated and led the communications strategies for innovators and disruptors globally (from pre-seed to IPO phase) and has been at the forefront of building the reputations of Google and Uber in Europe.  

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