“Stay Calm and Bank On”: The Emotional Contagion of SVB’s Collapse

Is it possible for businesses to lead a rational conversation about… emotion?

In 2023, it’s not terribly controversial to suggest that the political discourse has become emotional to the point of being nearly detached from rational argument or analysis. Our economy, too, often seems driven by fears that don’t seem grounded in facts; for example, the persistent worry about a wage-price spiral where there is little concrete evidence to support the view that it has taken hold. And certainly the discourse around #technology is increasingly driven by emotion; just witness the fear and wonder that is overwhelming rational discourse about #AI

And now –– in the aftermath of the rapid downfall of #Silvergate#SiliconValleyBank, and #Signature –– we have bank runs underpinned by everything from terror of a 2008-style contagion-fueled downturn, to schadenfreude at the spectacle of arrogant Silicon Valley high-flyers brought to heel, to the simple panic of depositors. 

It’s too soon how all this will end. But two simple facts are worth keeping in mind:

  • The first is that, by the nature of their business, banks will always be subject to bank runs. Bank reserves are always a small fraction of the bank’s assets. That’s what makes a bank different from keeping money under the mattress. Banks can only work because depositors don’t ask for their money back all at once. Until, of course, they do. 
  • The second is that mitigating bank runs is an exercise in managing emotions, as much as it is about managing the business. Telling people to stay calm rarely works. Staying calm may be rational on multiple levels and the best way to ensure everyone’s safety and well-being. 

Unfortunately, “stay calm and bank on” often has the opposite effect as intended. That’s because it goes against a fundamental and biological truth about how the human brain is wired. Rational thought is a luxury of the cerebral cortex; survival instincts that sit in the more ancient parts of the brainstem overwhelm it when the level of perceived threat is high. At these moments, emotional contagion is far more powerful than rational thinking.

To imagine otherwise is in itself an irrational act. The stories many of us are reading about startup founders frantically banging away on their smartphones trying to pull their deposits out of Silicon Valley Bank last Friday are a classic example.   

That’s an uncomfortable fact for many business organizations, which  –– particularly at the strategic level –– would much prefer to grapple with rational (and where possible, quantifiable) considerations than emotional ones. 

So what can be learned, even now at this early moment, from the #SVB debacle? One general, but important, insight is to get more demanding on ourselves –– and more rational in a meaningful sense –– on what are often very loose conversations about trust. Seemingly every business tries to portray itself, now or in aspiration, as “the trusted provider of X” or “the trusted intermediary for Y”. We’ve seen a lot of internal energy spent discussing why customers, clients, regulators, employees, and society at large should trust the business.  

And yet, the aspiration for trust almost always seems to be higher, and sometimes quite a lot higher, than the reality.

So this might be an opportune moment to turn that dialogue upside down and red-team the situation as an important complement to the typical trust discussion. Call a timeout on explaining why you think you deserve a level of trust that you don’t seem to be receiving.

Instead, try asking yourself questions like:

  • What are we actually doing right now that makes us trustworthy?
  • What kinds of dynamics could lead people to lose trust in us?
  • What are we doing right now to monitor for and protect against –– or reverse –– those dynamics? 

Those kinds of red-team conversations can start in a rational space, but they can’t stay there. Trust is an emotional state –– as much or more than a rational one –– and dramatic changes in trust and confidence are often a function of emotional contagion more than a function of rational thought. We know how this works in relation to banking because the dynamics have been studied for centuries. The same is less true for most other sectors.  

Now might also be a good moment to ask yourself:

  • What’s the emotional equivalent of a bank run in my business?
  • How would I see it coming if it were?
  • And what could I do to stop it?

That too would be a valuable part of a rational business conversation about emotion –– and this time, met with actionable insight.