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After the collapse of two different banks in less than a week in early March, it was clear to see how financial panic can quickly spread through word of mouth.
"No matter how strong bank capital and liquidity supervision are, if a bank has an overwhelming run that’s spurred by social media or whatever so that it’s seeing deposits flee at that pace, a bank can be put in danger of failing,” U.S. Treasury Secretary Janet Yellen said recently about the collapse of Silicon Valley Bank in Santa Clara, California, and Signature Bank in New York.
In this case, the “whatever” was private group messages and chats among SVB's customers. Chatter and warnings about SVB’s stability started in these forums and spread to Twitter; after the run on SVB, Signature Bank’s customers did a run on their bank, as well.
What can we learn from the bank runs, and how we can handle widespread financial panic in the future? Here are five things to do when bank-run panic — or any other drastic financial move — is trending.
1. Consider the source
If you’re hearing on TV or on social media that now’s the time to take some kind of action with your money, examine who is making the recommendation. Consider whether the source is credible or is selling a course or a product. That could be incentive for them to cause a panic that would lead to making them money, says Jason Co, a certified financial planner and the founder of Co Planning Group, which provides retirement planning and investment advice in the St. Louis area.
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2. Assess if the buzzy topic really affects you
“How juicy is this headline?” That’s the question that Ginger Ames, CFP and founder of financial planning firm Whisper Financial in Oakland, California, says to ask yourself when there’s a financial trend in the news. “The juicier the headline, the more likely it is to get exaggerated,” she says. When news gets sensationalized, it can make you feel like you need to take action but consider how likely it is that you’ll be affected by the issue you’re hearing about.
Even if it’s just one person, such as a public figure you admire or trust, making a financial recommendation, consider whether the advice is meant specifically for you. “There’s no way one person can give the best advice for everyone,” Co says.
For example, even if you hear from trusted sources that consumers are going on bank runs, it doesn't mean that your bank is going to fail. Silicon Valley Bank and Signature Bank may have collapsed, but they were just two of the more than 4,700 Federal Deposit Insurance Corp.-insured banks in the country.
And you generally don’t need to worry about withdrawing from your bank accounts if your money falls within the FDIC-insured limit, which is $250,000 per depositor, per bank, per account ownership category (such as joint or single accounts). If you’re banking above this limit, spread your deposits across different banks and use other strategic moves to insure all of your money.
3. Educate yourself and cut out the noise
“The more education you have on a topic, the less likely you are to be swayed by opinion,” Ames says. Learning about personal finance through self-study, talking to money professionals and discussing it with peers can help you better decide when it’s a good idea to take action with your money and when it’s not.
You can also reduce your exposure to news, she says. If looking at headlines and doom scrolling is inciting you to make moves with your money, take a step back. Cut out or limit your news intake to once a day, if possible.
Remember that just because a lot of people are saying the same thing, it doesn't mean they're correct. “It doesn’t mean they’re right, it just means they’re loud,” says Ames.
4. Use your best judgment or talk with a trusted professional
As with anything that’s suddenly popular, use your best judgment to decide if a financial decision is right for you. “If you don’t trust your own judgment, work with a financial advisor who can understand your situation, understand what your goals are, and help bring a long-term perspective to your financial life,” Co says.
5. Stick to your plan
It’s good to have a strategy in place for your money before any kind of financial panic starts spreading. “Have a plan so that your plan determines your actions for you,” Ames says. “Have a set trigger and a set action that you can always fall back on, so you’re not just acting out of emotion in the moment.”
Co, too, says that everything should come back to your personal financial plan — and remembering to maintain a long-term outlook. Fads and news cycles come and go, but your financial actions should remain aligned with your plans for your future.
