Two months after an internet-fueled run brought down Silicon Valley Bank and shook the industry, bankers are bolstering risk management, monitoring, and emergency procedures pertaining to the use of social media.
According to seven banking industry executives and analysts, executives in boardrooms across the United States are devising programs and plans to combat online threats, including rumors about the banks' health that could lead to deposit outflows or impact the stock.
The efforts, which have not been previously reported, highlight banks' urgent efforts to adapt to changing times, prevent depositors from sparking a bank run, and prevent online assaults by short sellers on their shares.
After tweets questioning SVB's financial health prompted customers to withdraw $1 million per second from their accounts before the bank failed on March 10, lenders are rethinking social media's role as a potential risk rather than a marketing tool.
"Social media risk was primarily reputational, but it has now led to deposit flight risks, which are existential," said Sumeet Chabria, founder of the consulting and advisory firm ThoughtLinks, which works with banks.
Greg Becker, the former CEO of Silicon Valley Bank, attributed the bank's demise to social media as an "unprecedented" factor. In ten hours, depositors withdrew $42 billion from SVB, he testified to the Senate Banking Committee on Monday.
SVB's swift downfall startled markets. The lender announced on March 8 that it was selling securities and raising capital. As concerns about its financial health intensified, Bay Area technology sector clients tweeted their concerns and withdrew funds via mobile applications or online banking.
Michael Roffler, the former CEO of First Republic Bank, also cited social media for its failure two months later.
"It was a wake-up call for some smaller lenders, who are now updating their emergency response and risk capabilities, as well as their business continuity plans, to combat this threat," Chabria said.
According to regional bank executives who declined to be identified because the discussions are private, bank executives and directors have ordered their companies to incorporate social media into risk-management programs.
One of the executives stated that risk departments had been tasked with developing a plan that enables banks to assess internet-related risk, prepare for it, and respond to it.
'Nip it in the Bud'
Banks also contact customers who complain on social media to resolve their concerns immediately.
"We want to nip it in the bud," stated the second executive.
What transpired at SVB could readily occur elsewhere, according to Greg Hertrich, head of U.S. deposit strategies for Nomura.
"Any bank that disregards their social media presence and the impact it may have on deposit behavior is doing themselves, their stakeholders, and most importantly their depositors a significant disservice," Hertrich stated.
Lindsey Johnson, CEO of the Consumer Bankers Association, an industry group whose members hold $15.1 trillion in assets, or about 68% of the U.S. total, stated that smaller lenders are focused on identifying their depositors and tapping into influential community members to counter any misinformation.
"Many banks are proactively communicating with their customers to convey the right message," she said. The outreach includes "providing facts and resources to their depositor bases via email, Twitter, and LinkedIn," as stated by the speaker.
Even the largest lenders are taking heed. Jamie Dimon, CEO of JPMorgan Chase & Co., cited social media as a factor in SVB's failure, and Jane Fraser, CEO of Citigroup Inc., described it as "a complete game changer."
First Republic's stock fell as the failures of SVB and Signature banks rattled investor confidence in regional financial institutions. A $30 billion deposit lifeline from 11 major lenders did not halt the company's decline, nor did the customer endorsements it posted on LinkedIn.
This month, First Republic was seized by regulators and acquired by JPMorgan.
Regulators are also observing. The Federal Deposit Insurance Corporation and the Federal Reserve of the United States have emphasized how technology has accelerated bank raids. According to a source, the Financial Stability Board, an international organization, is also investigating the role of social media in recent market turmoil.
An analyst stated that while some institutions have a game plan, others struggle.
Jim Perry, senior strategist at Market Insights, stated, "There are so many social media monitoring tools available today, but the use of these tools is frequently delegated to skeletal marketing teams or third-party vendors."
"Banks are aware of the risks and are beginning to realize that they need to devote more human resources to social media monitoring, but for many small lenders, this has not yet become a priority," Perry added.