The bank run that led SVB to fail was a rational flight to safety, behavioral finance experts said. It shows how human psychology can inject financial risk.
by social media. Customers saw peers rushing for the exits and didn't have the time to pour over the bank's financial statements and judge whether the bank was in dire straits, Shefrin said.
"If you have more than $250,000 at bank, in the absence of information, you have to assume the worst," Shefrin said. "And unfortunately, it becomes rational for you to participate."But the same rationality doesn't necessarily apply to bank customers whose deposits are fully insured, however, since they're not at risk of losing their money, experts said.
Bank officials also exhibited a psychological "failure" in their initial announcement of their need to raise money, Shefrin said. They didn't grasp the concept of "market signaling," and failed to anticipate how their communication of information might trigger a panic, he said. Stashing all deposits at a bank with like-minded tech-company founders may mean customers experienced the same fears at the same time, akin to an echo chamber, he said.
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