In Twitter We Trust?

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Could an outbreak of social media in Latvia have any implications for U.S. banks?

What happened in Latvia this weekend is not exactly clear, but what we seem to know is this: rumors spread over the social media network Twitter caused ordinary Latvians to rush to the bank in question and withdraw cash — a classic run on the bank.

While Twitter has been said to help bring down governments and been the source of “flash mobs” it has not been tagged with bringing down a bank.

“I don’t think that Latvia has anything to do with American banking for a whole variety of reasons,” says Dick Bove, Rochdale Securities’ noted bank analyst.

“We have gone through enough crises in the United States… we know that Americans simply do not take their money out of American banks because they have complete faith in the FDIC’s ability to protect their money. “

“No matter how bad the news gets concerning banks in the media,” he says “the American public not only doesn’t take money out of banks, in periods of extreme stress they put money in”.

The trend towards ordinary Americans and large institutions hoarding cash has been well documented, but when a particular institution is under fire, history also shows that depositors can be quick to head for the door. And in the age of Twitter, the “act first, ask questions later” type mentality certainly seems to be gaining ground.

So, should banks – and bank analysts consider whether or not a bank has a “break the glass” type Twitter plan?

Jeff Harte, Principal at Sandler O’Neill seemed intrigued by the question but also sees it as part of what he called an “evolution” of the internet.

“When it comes to bank runs, it could accelerate deposit runs” he say but, it’s also part of the same trend where information is being made available more and more quickly.”

“In an industry driven by confidence, that (rumor) could be all it takes”, Harte added. “Though for it to take, there has to be an underlying suspicion.”

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