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Specifically, could Silicon Valley Bank sue the Founders Fund and other VCs that had companies they invested in withdraw their funds?

Has any bank ever successfully done this?

To clarify, I'm not asking about the act of withdrawing funds, but encouraging others to do so.

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  • 43
    If banks could sue people for withdrawing money, that would call into question the entire banking business model. That would be like GrubHub suing someone for asking for their food to be delivered. Mar 14, 2023 at 23:51
  • 17
    It's not the action of withdrawing money that's starting the bank run, it's the action of telling other people to do so.
    – pjc50
    Mar 15, 2023 at 10:49
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    @ItWasLikeThatWhenIGotHere if the run was started by the dissemination of a false belief, either by directly making a false claim or implying it, is there no scope for this to be unlawful in some respect? Can a bank be defamed? Or if another party profits from the bank run could it amount to fraud?
    – Will
    Mar 15, 2023 at 11:20
  • 14
    There is a conspiracy theory floating around that some VCs colluded to deliberately collapse SVB in order to coerce the Fed out of further interest rate increases. If that were actually true, I imagine it would have to break at least one or two laws in most jurisdictions. Attempting to deliberately trigger a bank run by spreading lies or misleading information seems analogous to spreading lies or misleading information about a company in order to crash their stock price. Mar 15, 2023 at 13:49
  • 6
    @pjc50 What makes you think that bank runs are started by "telling other people to do so"? Typically, this isn't what happens. People in the know would prefer to keep their acts and motives under wraps until their own money and the money of people close to them is out. I am not aware of anyone ever intentionally trying to cause a bank run for the purpose of harming the bank (except the Dutch case in the answers).
    – ohwilleke
    Mar 15, 2023 at 18:52

3 Answers 3

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Can a bank sue someone that starts a bank run that destroys the bank?

No (assuming, of course, as is the usual case, that the person who starts the bank run is not engaged in perpetrating a defamatory falsehood).

Most bank runs are, and certainly the Silicon Valley Bank bank run was, based upon wide disclosure of a true fact. In the case of SVB, the bank run was triggered by the fact that its balance sheets failed to reflect the true value of fixed nominal rate bonds that it held as assets.

In the usual case, a lawsuit also isn't a very helpful option to a bank that suffers a bank run. In the case of SVB, the bank had a book value (which is often a fair measure of a bank's value since its assets are so monetized) of $34 billion which was reduced to a pittance by the run on it. Even if someone who started a run on the bank had a moderately high net worth of $3.4 million that could be collected in a money judgment, that would cover a mere 0.01% of the loss to the bank, and there would be serious issues over the causation of any loss (i.e. how much of the losses suffered bound to occur sooner or later anyway due to causes unrelated to someone who triggered a panic).

Another fine point of procedure is that when a bank becomes insolvent, it is promptly taken over by the FDIC or similar regulatory agency, which installs a receiver. This makes it effectively impossible for the bank itself to sue anyone. If the bank would otherwise have had a right to sue, the receiver for the bank would have the right to sue rather than the bank itself. But, this subtly while not irrelevant, doesn't capture the core reason for the question.

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    @user253751 "n some places it is illegal to spread a true fact with malicious intent" Can you cite an example?
    – ohwilleke
    Mar 15, 2023 at 18:48
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    it would not apply in this case, but in Germany a true fact may be considered an insult or defiling memory of a dead person (these are criminal offences) (see also section 192 "Insult despite proof of truth")
    – user253751
    Mar 15, 2023 at 18:56
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    @user253751 Perhaps, but no one is impinging upon the honor of SVB to hurt its feelings or anger it. This is yelling fire in a crowed theater that is actually on fire, possibly causing a panic or disorderly rush out the the theater in the process.
    – ohwilleke
    Mar 15, 2023 at 19:04
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    Yes, obviously only if it is inside information. I don't mean to suggest that this has anything to do with SVB, only to give a counterexample to the general statement that only a defamatory falsehood could be unlawful.
    – phoog
    Mar 15, 2023 at 20:34
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    "Insult despite proof of truth" sounds pretty orwellian. Mar 16, 2023 at 9:09
26

In The Netherlands, DSB Bank went bankrupt after investigator Pieter Lakeman, representative of a foundation of dissatisfied customers of the bank, called for a bank run, his argument being that it would allow for better handling of the cases of the victims he represented.

According to professor Doorenbos, as quoted in an article in De Volkskrant (in Dutch), Lakeman could be prosecuted on basis of three separate articles of Dutch law, neither of which are specific for bank runs.

  • Article 142, causing a disturbance by a false alarm or signal
  • Article 261 (incorrectly identified as 126 in the article), defamation
  • Article 334 (incorrectly identified as 324 in the article), influencing share prices with false information

He was, however, never prosecuted.

As a reaction to the actions of Lakeman and the following bank run on and bankruptcy of DSB Bank, a law was proposed that would've made it illegal to call for a bank run. The proposal seems to have died quietly.

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    This is interesting, but I can imagine an argument that (1) there was no false alarm, just a suggestion of a strategy; (2) telling people to cause a bank run isn't of itself a comment on a bank's reputation; and (3) telling people to cause a bank run doesn't imply disclosing information about the bank, false or otherwise. Perhaps this is why he was never prosecuted under those articles.
    – phoog
    Mar 15, 2023 at 20:31
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    For that specific individual, then @phoog comment applies, However, it does answer the question of whether someone could be sued (or in this case prosecuted) for starting a bank run. It seems that this would be possible, were someone to do so by spreading false rumours. Mar 15, 2023 at 20:46
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    @TobySpeight good point, though it would be more accurate to say in such a case that the defendant had been prosecuted for defamation, or the false rumors, or whatever crime they're being prosecuted for than for causing a run on the bank. Similarly, an attention seeker who causes a crowd to gather by climbing a tall building without permission is prosecuted for trespass; you wouldn't say that the person was prosecuted for causing a crowd to gather.
    – phoog
    Mar 15, 2023 at 21:10
8

I recall an actual case where there was a threat to prosecute: it was over 35 years ago in Auckland, where I was living at the time.

A woman who was a customer of the Building Society attempted to withdraw a large amount of money while visiting a branch in another city. They asked for some time to check with Auckland before allowing the withdrawal (this was the late 1980s before most people had mobile phones or Internet access). Instead she called up a talkback radio show and said that the building society was in trouble and wasn't honouring deposits, thereby starting a run.

As I recollect, some other banks extended a line of credit to the building society, as they saw the potential for themselves to be victims of similar behaviour in the future. After a couple of days, most people who had withdrawals funds realized that they had been silly, and put the money back (the building had been paying a high rate of interest). There was some talk of suing the woman, but I'm not sure of the outcome, as I left the country soon after. If they sued, the outcome would have depended on malice vs stupidity.

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    Hmmm... "(this was the late 1980s before most people had mobile phones or Internet access)". That's a bit of an understatement. In the late 80s, there were mobile phones, very few people had them, and they were only useful for making voice calls. The "internet" existed, but there was no world wide web yet unless you were a friend of Tim Berner-Lee
    – Flydog57
    Mar 16, 2023 at 15:38
  • 2
    @Flydog57: Usenet existed since 1980; no WWW wasn't an obstacle to discussion forums existing on the early Internet. Just not in their modern form. Of course, IDK if there was a newsgroup for discussion of real-life stuff in NZ, or banking. And "check with Auckland" could be something that the bank did by internal email (SMTP is also old) or via their own custom network software, if they had such a thing. But probably not since encryption was in its early days, too. Anyway, yeah, pretty early days for networks, however you look at it. Mar 16, 2023 at 18:31
  • Is this the same story? A run on the bank (well, building society)
    – Andrew T.
    Mar 18, 2023 at 3:17
  • @Andrew T. Good work finding that, but the dates don't fit. I had just returned to NZ in 1985, and the story that I remember was later: 1988 I'd say. Mar 19, 2023 at 6:04

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