Focus: US banks rethink social media as a threat, not a marketing tool

First Republic Bank

18/05/2023 11:00

(Repeats story with no change to text)
    By Nupur Anand
       NEW YORK, May 18 (Reuters) - Bankers are beefing up risk
management, monitoring and emergency procedures around the use
of social media after an internet-fueled run toppled Silicon
Valley Bank two months ago and sparked turmoil in the industry.
    In board rooms across the United States, executives are
devising programs and plans to counteract online threats
including rumors around the health of the banks that could lead
to deposit outflows or weigh on the stock, according to seven
banking industry executives and analysts.
    The efforts, which have not been previously reported,
underscore banks' urgent efforts to adapt to changing times,
prevent depositors from sparking a bank run or stop online
attacks on their shares by short sellers.
Lenders are taking action, rethinking social media's role as a
potential risk rather than marketing tool, after tweets
questioning SVB's financial health prompted nervous customers to
pull $1 million per second from their accounts before the bank
failed on March 10.
    "Social media risk was primarily reputational, but now it
has led to deposit flight risks, which are existential," said
Sumeet Chabria, founder of ThoughtLinks, a consulting and
advisory firm that works with banks.
Greg Becker, the former CEO of Silicon Valley Bank, blamed
social media as an "unprecedented" factor in the lender's
demise. Depositors withdrew $42 billion from SVB in 10 hours, he
wrote in testimony to the Senate Banking Committee on Monday.
SVB's swift downfall stunned markets. On March 8, the lender
announced it was selling securities and raising capital. As
concerns about its financial health escalated, clients in the
Bay Area tech industry tweeted about their worries and pulled
out funds via mobile apps or online banking.
The former CEO of First Republic Bank, Michael Roffler, also
blamed social media for its collapse two months later. 
    "It has been a wake-up call for some smaller lenders who are
now working on updating their emergency response and risk
capabilities, along with business continuity plans to tackle
this threat," Chabria said.
    Bank executives and directors have ordered their companies
to add social media into risk-management programs, according to
regional bank executives who declined to be identified because
the discussions are private.
    Risk departments "have been pulled in to detail out a plan
which allows banks to measure internet-related risk, prepare for
it and respond to it," one of the executives said.
     
    "NIP IT IN THE BUD"
    Banks are also contacting customers who complain on social
media to address their issues quickly.
    "We want to nip it in the bud," the second executive said.
     What played out at SVB could easily happen elsewhere, said
Greg Hertrich, head of U.S. depository strategies at Nomura.
    "Any bank that doesn't pay attention to their social media
presence, and the effect it might have on deposit behavior is
doing themselves, their stakeholders and most importantly, their
depositors, a pretty significant disservice," Hertrich said.
    Smaller lenders are focused on identifying who their
depositors are and tapping into influential community members to
counter any misinformation, said 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.
    "Many banks are taking a proactive approach to communicate
to 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," she said.
The biggest lenders are also taking note. JPMorgan Chase & Co
 JPM.N  CEO Jamie Dimon cited social media as a factor in SVB's
failure, and Citigroup Inc  C.N  CEO Jane Fraser called it "a
complete game changer."
    As the collapses of SVB and Signature banks shook confidence
in regional lenders, First Republic's stock plunged. A $30
billion deposit lifeline from 11 major lenders did not stop its
decline, nor did the customer testimonials it posted on LinkedIn
to shore up confidence.
    First Republic was seized by regulators and bought by
JPMorgan earlier this month.
    Regulators, too, are watching. The U.S. Federal Deposit
Insurance Corporation and Federal Reserve both underscored how
technology has sped up bank runs. The Financial Stability Board,
an international body, is also investigating the role of social
media in recent market turmoil, a source said.
    While some banks have a game plan, others are still
struggling, an analyst said.
    "There are so many social media monitoring tools today, but
the use of those tools is often delegated to threadbare
marketing teams or third party vendors," said Jim Perry, senior
strategist at Market Insights.
    "Banks are cognizant of the risks and are beginning to
understand that they need to dedicate more human resources to
social media monitoring, it just hasn’t become a priority for
many small lenders," Perry added.

 (Reporting by Nupur Anand in New York; Editing by Lananh Nguyen
and Anna Driver)
 ((mailto:Nupur.Anand@thomsonreuters.com; +1 646 240 2975;))