US banks are again seeing social media as a threat, not a marketing tool

By Nupur Anand

NEW YORK (Reuters) – Bankers are bolstering risk management, monitoring and fallback procedures around their use of social media after an internet-driven run toppled Silicon Valley Bank two months ago and caused an uproar in the industry.

According to seven banking industry executives and analysts, in boardrooms across the US, executives are developing programs and plans to counter online threats, including rumors about the health of banks that could lead to deposit outflows or stocks to weaken.

The previously unreported efforts highlight the banks’ urgent efforts to adapt to changing times, stop depositors from causing banks to panic, or stop online attacks on their shares by short sellers.

Lenders are taking action, considering the role of social media as a potential risk rather than a marketing tool, after tweets questioning SVB’s financial health prompted nervous customers to withdraw $1 million a second from their accounts before the bank collapsed on March 10.

“Social media risk was primarily about reputation, but now it has led to a deposit risk that is existential,” said Sumeet Chabria, founder of ThoughtLinks, a consulting and advisory firm that works with banks.

Greg Becker, former CEO of Silicon Valley Bank, blamed social media for the “unprecedented” factor in the lender’s collapse. Depositors withdrew $42 billion from SVB in 10 hours, he wrote in testimony before the Senate Banking Committee on Monday.

The rapid collapse of SVB shook the markets. On March 8, the lender announced the sale of securities and raising capital. As concerns about their financial health intensified, Bay Area tech customers tweeted about their concerns and pulled out funds via mobile apps or online banking.

Former First Republic Bank CEO Michael Roffler also blamed social media for the bank’s collapse two months later.

“This has been a wake-up call for some smaller lenders who are currently working to update their emergency and risk response capabilities as well as business continuity plans to address this threat,” Chabria said.

Bank executives and directors have ordered their companies to add social media to their risk management programs, according to regional bank executives who declined to be identified because the discussions are private.

Risk departments “have been engaged to develop a detailed plan that allows banks to measure, prepare for and respond to internet-related risks,” said one executive.


Banks are also contacting customers who complain on social media to resolve their issues quickly.

“We want to nip it in the bud,” said the other director.

What played out at SVB could easily happen elsewhere, said Greg Hertrich, head of US escrow strategies at Nomura.

“Any bank that is ignorant of its social media presence and the impact it can have on depositing behavior is doing itself, its stakeholders and most importantly its depositors quite a significant disservice,” Hertrich said.

Smaller lenders are focusing on identifying who their depositors are and using community influencers to counter any misinformation, said Lindsey Johnson, chief executive of the Consumer Bankers Association, an industry group whose members own $15.1 trillion in assets, or about 68 percent total.

“Many banks are taking a proactive approach to communicating with their customers to get the right message across,” she said. Outreach efforts include “providing facts and resources to their depositor bases via email, Twitter and LinkedIn,” she said.

The largest lenders also pay attention to this. JPMorgan Chase & Co CEO Jamie Dimon cited social media as a factor in SVB’s failure, while Citigroup Inc CEO Jane Fraser called it “a complete game changer.”

As the failures of the SVB and Signature banks shook confidence in regional lenders, First Republic shares fell. The $30 billion deposit from 11 major lenders did not stop its decline, nor did the customer reviews he posted on LinkedIn to bolster trust.

First Republic was hijacked by regulators and bought by JPMorgan earlier this month.

Regulators are watching too. The US Federal Deposit Insurance Corporation and the Federal Reserve have highlighted how technology has accelerated bank runs. The Financial Stability Board, an international body, is also examining the role of social media in the recent market turmoil, the source said.

While some banks have a game plan, others are still struggling, the analyst said.

“There are so many social media monitoring tools out there today, but the use of these tools is often delegated to hackneyed marketing teams or third-party vendors,” said Jim Perry, senior strategist at Market Insights.

“Banks are aware of the risks and are starting to understand that they need to devote more human resources to monitoring social media, it just hasn’t become a priority for many small lenders,” added Perry.

(Reporting by Nupur Anand in New York; editing by Lananh Nguyen and Anna Driver)

Source link

Leave a Comment