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

NEW YORK, May 18 (Reuters) – Bankers are tightening risk management, monitoring and emergency procedures around the use of social media after an internet-fueled run toppled a Silicon Valley bank two months ago and sparked industry turmoil.

In boardrooms across the United States, executives are devising programs and plans to counter online threats, including rumors about the health of banks that could lead to deposit outflows or weigh on stocks, according to seven banking industry executives and analysts.

The move, which has not been previously reported, underscores banks’ urgent efforts to adapt to changing times, prevent depositors from triggering a bank run or stop online attacks on their shares by short sellers.

Lenders are taking action, reassessing the role of social media as a potential risk rather than a marketing tool, after tweets questioning SVB’s financial health prompted jittery customers to withdraw $1 million a 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 risk, which is 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 a “singular” 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 rapid fall stunned the markets. On March 8, the lender announced it was selling securities and raising capital. As concerns about its financial health escalated, customers in the Bay Area’s tech industry tweeted their concerns and withdrew money via mobile apps or online banking.

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

“It has been a wake-up call for some smaller lenders who are now working to update their preparedness and risk capabilities, along with 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 brought in to detail a plan that allows banks to measure Internet-related risk, prepare for it and respond to it,” one of the executives said.

“NIP IT IN THE BUTTON”

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 manager.

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

“Any bank that doesn’t consider their social media presence, and the effect it can 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, executive director of the Consumer Bankers Association, an industry group whose members hold $15.1 trillion in assets, or about 68 % of the United States. Total.

“Many banks are taking a proactive approach to communicating 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 ) Chief Executive Jamie Dimon cited social media as a factor in SVB’s failure, and Citigroup Inc ( CN ) Chief Executive Jane Fraser called it “a complete game changer.”

As the collapses of SVB and Signature banks shook confidence in regional lenders, First Republic’s shares plunged. A lifeline of $30 billion in deposits from 11 major lenders didn’t stop the decline, nor did the customer testimonials it posted on LinkedIn to bolster confidence.

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

Regulators are also included. The US Federal Deposit Insurance Corporation and the Federal Reserve both emphasized how technology has accelerated bank runs. The Financial Stability Board, an international body, is also investigating the role of social media in the latest 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 these tools is often delegated to seasoned marketing teams or third-party vendors,” said Jim Perry, senior strategist at Market Insights.

“Banks are aware 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

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