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

NEW YORK, May 18 (Reuters) – Bankers are tightening risk management, oversight and contingency procedures around social media use after an internet-fueled race toppled Silicon Valley Bank a while ago two months and caused unrest in the industry.

In boardrooms across the United States, leaders are crafting programs and plans to counter online threats, including bank health rumors that could lead to deposit outflows or weigh on stocks, according to seven executives and analysts from the banking sector.

The efforts, which have not previously been reported, underscore urgent efforts by banks to adapt to changing times, prevent depositors from triggering a bank run or stop online attacks on their stocks by high-speed sellers. discovered.

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 $1m per second from their accounts before the bank went bankrupt on March 10.

“Social media risk was primarily reputational, but it has now led to deposit leak risks, which are existential,” said Sumeet Chabria, founder of ThoughtLinks, an advisory and consultancy firm that works with the banks.

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

The rapid fall of SVB stunned the markets. On March 8, the lender announced that it was selling securities and raising capital. As concerns about his financial health escalated, Bay Area tech industry customers tweeted their concerns and withdrew funds through mobile apps or online banking.

Former First Republic Bank CEO Michael Roffler also blamed social media for his collapse two months later.

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

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

Risk departments “have been asked to detail a plan that enables banks to measure, prepare for and respond to internet-related risks,” one of the officials said.


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

“We want to nip it in the bud,” the second leader said.

What happened at SVB could easily happen elsewhere, said Greg Hertrich, head of US filing strategies at Nomura.

“Any bank that fails to pay attention to its social media presence and the effect this could have on deposit behavior is doing itself, its stakeholders and, most importantly, its depositors a disservice. quite significant,” Hertrich said.

Small lenders are focused on identifying their depositors and tapping into influential members of the community to counter any misinformation, said Lindsey Johnson, CEO of the Consumer Bankers Association, an industry group whose members hold $15.1 trillion. dollars in assets, or about 68% of the United States. total.

“Many banks are taking a proactive approach to communicating with their customers to send the right message,” she said. Outreach includes “providing facts and resources to their registrant 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 (CN) CEO Jane Fraser called it ” complete game changer”.

As the collapses of SVB and Signature banks shook confidence in regional lenders, shares of First Republic plunged. A $30 billion deposit lifeline from 11 major lenders hasn’t stopped his decline, nor have the customer testimonials he posted on LinkedIn to boost confidence.

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

Regulators are also watching. Both the Federal Deposit Insurance Corporation and the US Federal Reserve have highlighted how technology has accelerated bank runs. The Financial Stability Board, an international body, is also investigating the role of social media in the 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 out there today, but the use of these tools is often delegated to worn-out marketing teams or third-party vendors,” said Jim Perry, senior strategist at Market Insights.

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

Reporting by Nupur Anand in New York; Editing by Lananh Nguyen and Anna Driver

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