Two years after a digital bank run crashed Credit Suisse, hindsight shows that social media only partially explains the bank’s demise. In October 2022, an Australian journalist posted a tweet. “Credible source tells me a major international investment bank is on the brink.”
Two years after a digital bank run crashed Credit Suisse, hindsight shows that social media only partially explains the bank’s demise. In October 2022, an Australian journalist posted a tweet.
“Credible source tells me a major international investment bank is on the brink.”
It was a vague tweet from a reporter who more typically posted about the domestic housing market, mortgage rates and whether Sydney is prettier than Melbourne. Within hours, the internet decided that Credit Suisse was the bank in trouble, and one of the world’s largest and oldest financial institutions was soon bleeding tens of billions of dollars a day as panicked clients withdrew their money. The first ever digital bank run threatened to spark another full-blown global financial crisis. This appeared to be an entirely new phenomenon. As Credit Suisse went into a tailspin — and with other banks in the US also collapsing a few months later — bankers and the authorities that regulate them began fretting over the impact of the internet on financial stability. If social media could crash one of the world’s largest banks, something would need to be done. And yet, looking at the crisis with two years of hindsight, it’s clear that what eventually brought Credit Suisse to its knees was not a new kind of online threat but a much more traditional weakness of the banking industry — the scandalous behavior of the bank’s well-paid employees. (My new book, Meltdown, from Pan Macmillan details this collapse.) With banking authorities still picking over the debris of this period of bank failures — and with a new US president expected to relax banking regulations — it is important to make sure the right lessons have been learned.
The risk of a fear-fueled run is the fatal flaw in the modern banking system. It’s been a meme for decades, rippling through movies and shows from It’s a Wonderful Life to Mary Poppins to The Simpsons. In a [1995 episode](https://www\.youtube\.com/watch?v=ZpIC\-cOry1k&t=1s"The bank is out of money - The Simpsons") parodying It's a Wonderful Life, Bart pranks customers at a Springfield bank by shouting, “What do you mean the bank is out of money? Insolvent?! You only have enough cash for the next three customers?!” We know how that scene will end.
IRL, bank runs are rare but devastating. In 2007, television news cameras filmed [lines of customers outside branches of the UK’s Northern Rock bank](https://www\.youtube\.com/watch?v=v6reto6BOWc"CNN footage of lines outside Northern Rock"). The country’s first bank run in more than 140 years became a defining image of the global financial crisis.
Stopgaps and circuit breakers exist to help prevent a run, and to avoid a run at one bank spilling over into the broader economy. These have been built up over decades, usually in response to the specific nature of the previous financial crisis. Banks must keep a proportion of their funds in liquid assets, for instance, and governments guarantee retail deposits — up to a point — to assuage the fear that you could lose it all if the bank goes down.
In the pre-social media world, there was another safeguard: Rumors spread slowly or sometimes not at all. In 2018, Bloomberg Opinion columnist [John Authers wrote in the Financial Times](https://www\.ft\.com/content/1fcb4d60\-b1df\-11e8\-99ca\-68cf89602132?"In a crisis, sometimes you don’t tell the whole story") about his decision, during the height of the financial crisis a decade earlier, not to publish a story with photos describing a bank run he’d witnessed firsthand on Wall Street.
“Was this the right call?” Authers wrote. “I think so. All our competitors also shunned any photos of Manhattan bank branches. The right to free speech does not give us the right to shout fire in a crowded cinema; there was the risk of a fire, and we might have lit the spark by shouting about it.”
The October 2022 run at Credit Suisse played out in a new era, where both information and money could move around the world with astonishing speed. Social media posters added charts to the original tweet and rewrote it in headline format, giving the message an air of authority: “Journalist: Credit Suisse on the brink.” The rumor surfaced on the message board Reddit. It was translated on WeChat and other Chinese social-media sites that dominated in parts of Asia. Mocking social-media memes proliferated. One image showed the Swiss flag, a white cross on a red background, redrawn as a giant minus sign.
What was happening to the Swiss bank was, in a sense, the opposite of the meme stock phenomenon of 2021, when ordinary investors had banded together on Reddit to drive up the share price of unloved stocks in companies including GameStop Corp., Blackberry Ltd. and AMC Entertainment Holdings Inc. With Credit Suisse, the social media messages damaged the bank’s business model, which in turn crashed the share price.
The bank’s leaders were perplexed. No one knew how you put an end to rumors on social media. As they stalled, the sense of panic intensified and the scale of the problem became terrifyingly clear. Soon, almost $100 billion had been withdrawn by customers. The executive team wondered whether the bank could survive, and considered whether they could strike a merger deal or find a friendly rival to take over completely. The communications team had already prepared a press release as an obituary for the bank.
Eventually, top executives met with wealthy clients one on one, and presented data to show the bank was fundamentally sound, convincing enough of them to keep their money in the bank to stabilize the situation. But the run left Credit Suisse truly on the brink.
Six months later, social media struck again. This time, the victim was Silicon Valley Bank (SVB), whose demise — a result of close-knit clients sharing doom-laden WhatsApp messages — was the quickest bank run in US history. When two more US banks folded within days, the whole system seemed to be teetering, until US President Joe Biden followed by Treasury Secretary Janet Yellen proclaimed that the government had the banking industry’s back.
The panic in the US put Credit Suisse back in the crosshairs. When clients again began withdrawing billions more from the bank in early March 2023, Swiss authorities took emergency action and ushered Credit Suisse into the arms of its biggest rival, UBS Group AG, via a forced takeover that wiped billions of dollars from the value of investments in the bank’s debt and equity.
In the aftermath, Credit Suisse’s former chairman said US bank failures and concerns about global contagion had contributed to the bank’s demise, but that “social media and digitalization fanned the flames of this fear.” Bankers and their regulators talked in government hearings and in other public forums about this new kind of crisis and the need to bolster a system that seemed suddenly much more fragile. Yellen and Senator Mark Warner, a Democrat from Virginia, decried the perils of this new force that undermined banking stability. It seemed like a solution to social media was key to safeguarding the banking system.
So what has been done? A [report from the Federal Deposit Insurance Corp.](https://www\.fdic\.gov/system/files/2024\-07/cookson\-presentation\.pdf"Social Media as a Bank Run Catalyst") in July 2024 noted that social media “is not just a social network, but a platform that coordinates ideas” with a “distinctive” widespread reach that amplifies panic. In February 2024, the European Stability Mechanism [issued an “updated understanding of bank runs.”](https://www\.esm\.europa\.eu/blog/wanted\-updated\-understanding\-bank\-runs"WANTED: an updated understanding of bank runs") First, an ESM Economist noted, the speed with which money moves around the financial system had been a worry as far back as the 1980s at least (though money moves far faster and far more freely today). On social media, the ESM said banks that had more coverage on X (formerly Twitter) were potentially more likely to suffer from a social media-driven run. Their proposed solution was that bank regulators should consider more social media messaging “to reassure the public on the soundness of the system,” and that banks should aim to sell more products to their customers so that the relationships become stickier and the customers are more reluctant to move deposits.
But here’s the thing. The digital run was not the core problem in either case. At SVB, the bank’s leaders had got themselves into a strategic quandary they couldn’t get out of. At Credit Suisse, years of mismanagement had destroyed any trust in its executives to do the right thing. In Switzerland, the [local regulator’s report into Credit Suisse’s collapse](https://www\.finma\.ch/en/news/2023/12/20231219\-mm\-cs\-bericht/"FINMA publishes report and lessons learned from the Credit Suisse crisis") noted deficiencies in risk management, high pay that was out of step with the bank’s results, and “reorganizations, high costs, fines and losses.” These issues led to a loss of confidence in the bank, and “digital communications channels” simply exacerbated the problems that already existed.
Indeed, the bank made for an especially brittle target, its reputation battered by scandal after scandal. In the past decade alone, Credit Suisse had been found guilty of money laundering for a gang of Bulgarian drug traffickers. One of its rogue bankers had ripped off the former prime minister of Georgia. Another banker had taken millions of dollars in kickbacks in a multibillion-dollar scandal that led to the collapse of Mozambique’s economy. The bank was accused for years of mishandling an ongoing internal investigation into allegations it concealed information about accounts held by Nazis after World War II.
In other words, it was misconduct that left the bank’s reputation in tatters and which made it vulnerable to a bank run, digital or otherwise. The situation became even more fragile thanks to a one-two blow of successive scandals in early 2021. That year, the bank lost $5.5 billion from [the fall of the hedge fund Archegos](https://www\.bloomberg\.com/features/2024\-bill\-hwang\-archegos\-collapse\-timeline/"The Last 72 Hours of Archegos") and it had been forced to shutter about $10 billion in funds tied to the failed UK finance firm Greensill. These two expensive scandals ruptured the trust between the bank, its regulators and its clients. Greensill in particular was damaging because it was client money — not shareholder funds — that went missing.
What made all of this so much worse was a rapid churn through Credit Suisse’s executive ranks, with some senior personnel forced out following scandals that had little to do with banking. Chief Executive Officer Tidjane Thiam resigned in 2020 after an investigation revealed the bank hired private detectives to spy on former executives and others — a scandal that came to light after one target confronted a spook tailing him through the streets of Zurich. A former chairman left in 2022 after he was found to have attended the Wimbledon tennis tournament in breach of Covid-19 travel rules.
The turnover in leadership created its own vulnerability. When the Twitter storm swept over the bank, its top executives had all joined within the past few months. The bank had a new chairman, new CEO, new chief risk officer and new chief legal counsel. The head of the investment bank was new, as were several members of the senior media relations and corporate communications team. The incoming CFO hadn’t even officially started in his new role when the bank’s meltdown began. This novice crew of leaders was in no position to defend the bank when social media shone a light on its problems.
A report on Credit Suisse’s collapse noted deficiencies in risk management, high pay that was out of step with results, and “reorganizations, high costs, fines and losses.”Photographer: Arnd Wiegmann/Bloomberg.
In the aftermath of the end of Credit Suisse — and of SVB and others — the discussion on regulation and banking stability quickly shifted to traditional battlegrounds. The regulators said they wanted banks to set aside more capital. In Switzerland, they demanded more tools for punishing misconduct, too. The bankers pushed back — especially on higher capital requirements that would crimp profits and bonuses.
The market’s reaction to the outcome of the US election suggests it is the bankers who will get their way. Investors in bank stocks are betting on an era of lower regulation and looser oversight. If that happens, we can expect that misconduct and scandals will follow too.
That seems like clear evidence the industry doesn’t learn from its mistakes. For while Credit Suisse was an outlier in terms of the volume and frequency of the scandals it fostered, it was by no means the only source of misconduct. Many of its former peers dabbled in the same murky pools of misbehavior — misuse of mortgage-backed securities, breaching sanctions, failing to stop money-laundering, rogue traders and so on. These failures are a result of a culture that incentivizes excessive risk-taking and rewards those who find the most profitable ways to play in the gray areas between regulations.
At Credit Suisse, the effect of its employees' behavior was that the bank simply ran out of trust. Depositors didn’t trust the bank to take care of their money. Investors didn’t trust its leaders to turn around the bank’s wilted share price. The authorities didn’t trust the bankers to avoid more embarrassing and costly scandals. Social media played a role, of course. It was the light that illuminated the bank’s failings and the medium that carried the bank’s death sentence. Against a backdrop of repeated Credit Suisse scandals, the internet simply exposed real-world problems. How do you avoid a digital bank run? The answer is simple: You run a better bank.
