NEW YORK (Reuters) – Bankers are stepping up risk management, monitoring and contingency measures around social media use after an internet-backed chain ousted a Silicon Valley bank two months ago and unleashed the industry.
In boardrooms across the United States, executives are devising programs and plans to counter online threats including rumors about banks’ health that could lead to deposit outflows or affect stocks, according to seven banking industry executives and analysts.
These efforts, which have not been previously reported, underscore the urgent efforts of banks to adapt to changing times, and prevent depositors from sparking a wave of banks or stop online attacks on their shares by short sellers.
Lenders are taking action, rethinking 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’s March 10 failure.
“Social media risks were primarily reputational, but now they have led to deposit flight risks, which are existential risks,” said Smit Chhabria, founder of ThoughtLinks, a consulting and advisory firm that works with banks.
Greg Baker, former Silicon Valley bank CEO, blamed social media as an “unprecedented” factor in the lender’s demise. He wrote in testimony before the Senate Banking Committee on Monday that depositors withdrew $42 billion from SVB in 10 hours.
SVB’s rapid collapse stunned the markets. On March 8, the lender announced that it was selling securities and raising capital. As concerns about her financial health mounted, customers in the Bay Area tech industry tweeted about their concerns and withdrew money via mobile apps or online banking.
Former First Republic Bank CEO Michael Roeffler also blamed social media for its collapse two months later.
“It was a wake-up call for some of the smaller lenders who are now working to upgrade their emergency response and risk capabilities, along with business continuity plans, to address this threat,” Chhabria said.
Bank executives and managers have ordered their companies to add social media to their risk management programs, according to two regional bank executives who declined to be identified because the discussions are private.
Risk departments “were pulled together to create a detailed plan that would allow banks to measure, prepare for, and respond to cyber-related risks,” said one executive.
“Nip it on the bud”
Banks are also reaching out to customers who complain on social media to quickly address their issues.
“We want to nip it in the bud,” said the second official.
What happened in SVB could easily happen elsewhere, said Greg Hertrich, head of US deposit strategies at Nomura.
“Any bank that doesn’t pay attention to their social media presence, and the impact that they may have on deposit behavior, is doing themselves, their stakeholders, and most importantly, their depositors a disservice,” Hertrich said.
Smaller lenders are focused on identifying depositors and tapping into influential members of society to counter any misinformation, said Lindsey Johnson, CEO of the Consumer Bankers Association, an industry group whose members own $15.1 trillion in assets, or about 68% of the U.S. bank. the total.
“Many banks are taking a proactive approach to communicating with their customers to get the right message across,” she said. It said the outreach includes “providing facts and resources to our depositor bases via email, Twitter and LinkedIn.”
Larger lenders have taken note, too. Jamie Dimon, CEO of JPMorgan Chase & Co (JPM.N), cited social media as a factor in SVB’s failure, and Jane Fraser, CEO of Citigroup Inc (CN), called it “a complete game-changer.”
As the collapse of SVB and Signature banks shook confidence in regional lenders, First Republic stock fell. The lifeline of $30 billion in deposits from 11 major lenders didn’t stop his decline, nor did the customer testimonials he posted on LinkedIn to boost confidence.
First Republic was confiscated by regulators and acquired by JPMorgan earlier this month.
The regulators are also watching. Both the US Federal Deposit Insurance Corporation and the Federal Reserve have emphasized how technology has helped speed up bank operations. A source said the Financial Stability Board, an international body, is also investigating the role of social media in the recent market turmoil.
An analyst said that while some banks have a game plan, others are still struggling.
“There are a lot of social media monitoring tools out there today, but the use of these tools is often delegated to outdated marketing teams or third-party sellers,” said Jim Perry, chief strategist at Market Insights.
“Banks are realizing the risks and starting to realize that they need to devote more human resources to monitoring social media, that hasn’t become a priority for many small lenders,” Perry added.
(Reporting by Nupur Anand) in New York. Editing by Lanan Nguyen and Anna Driver
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