(This article originally appeared in the South China Morning Post.)

A poorly written press release led to panicked messages spreading on WhatsApp and Twitter, fuelling the run on Silicon Valley Bank. Yet the wider fallout, which has become a global banking crisis, might have been avoided simply by good communication

The current banking crisis is a painful reminder of the fragility of confidence and trust in our financial system. It is also a reminder to the finance community and communications professionals of the importance of high-quality communication and the very real risks that instant messaging and social media present to institutions.

Over the past few weeks, we have seen how potent the combination of poor management and internal controls at Silicon Valley Bank (SVB), wafer-thin faith in bank stability and the impact of social media can be in rapidly amplifying these problems.

Dubbed “the first Twitter-fuelled bank run” by House Financial Services chairman Patrick McHenry, the toxic mix of issues created a fast-breaking wave of worry that has led to major liquidity and insolvency issues at institutions – seemingly safe and sound just moments before.

As the contagion spread from small, regional banks to national US lenders, eventually contributing to the downfall of Credit Suisse, banks have shown how fragile they are after the shock brought on by the end of an era of record-low interest rates. Just over a week after SVB’s issues emerged, the global banking industry had lost around US$1 trillion in value, according to global index provider MSCI.

Bank runs have occurred throughout history, rising to a fever pitch most recently during the 2008 global financial crisis. Despite regulators’ attempts at prevention, a significant risk remains.

Many hope the regulations introduced in the wake of the global financial crisis will be enough to stave off any wider crisis in the coming months, although according to the International Monetary Fund, risks to financial stability have grown in the fallout triggered by SVB’s failure.

Commentators have proposed many ways to fix the banking crisis. Martin Wolf of the Financial Times makes four suggestions: let the banks fail, tighten regulations, improve leverage ratios and, finally, fully back bank deposits with central bank reserves.

Even if any of these ideas can effectively stem future crises, there will always be the accompanying risk that viral messages shared on social media can help precarious situations accelerate into runaway trains.

Bank runs predate social media and is as old as banking itself. Thanks to technological advances, the significant change that has occurred is the speed at which problems become contagious. It is hard to see how anyone, let alone governments and regulators, can begin to control the spread of information. People talk, after all, and that is how ideas, good and bad, have always spread.

Social media companies have, under pressure, made some attempts to control some of the more extreme, harmful and illegal activities that these platforms are used for. WhatsApp, for example, started to introduce limits on the forwarding of messages in 2018, after rumours that spread on the platform led to mob violence in India.

A crisis in the banking industry is a very different situation, however, and it is hard to see how further controls on social media could be extended into this industry – or others, for that matter.

One practical solution is to improve the checks, balances and overall quality of communication from within the industry. As we saw with SVB, a US$2 billion loss on US government bonds driven by rising interest rates was poorly translated into a press release.

The release, casually commenting on the loss, raised alarm bells among influential Silicon Valley investors who went on to WhatsApp and Twitter advising people to pull funds from SVB. This went viral and a run on the bank escalated.

Hindsight is a beautiful thing. But it is plausible to assert that if external and investor communication had been handled more competently, the crisis may have been averted. This is a powerful reminder to bankers and communication professionals alike of the dangers of dealing with sensitive information – and the outcomes when this is not handled successfully.

Darrell Wright is managing director, Asia-Pacific, at Cognito