NEW YORK— A new study from researchers at the Federal Reserve Bank of New York finds that news coverage, rather than underlying financial fundamentals, played a central role in shaping investor reactions during the 2023 banking crisis that saw the rapid failures of Silicon Valley Bank and others.
Outlined in a recent Liberty Street Economics post, the analysis shows that investors largely ignored warning signs that were visible in public bank data as early as the first quarter of 2022. Instead, attention to bank risk only spiked after the crisis began—and concentrated heavily on institutions featured in the news.
The researchers developed a high-frequency measure of bank balance-sheet risk and compared it with “Pubcount,” a metric capturing the intensity of daily news coverage for each bank. They found that when a bank appeared more frequently in media reports, investors became far more sensitive to its risk profile—whether or not its fundamentals had worsened.
The study concludes that news coverage effectively acted as a coordination mechanism, directing collective investor focus toward certain banks and amplifying perceptions of distress. While this dynamic made market reactions noisier and more prone to overreaction, it also helped limit contagion by concentrating fear on a small group of institutions rather than the broader sector.
The authors note that during the 2023 turmoil, news flow was “at least as important” as actual financial data in shaping market behavior.