In the digital age, American banks are grappling with a fresh menace – social media. A Twitter-fueled bank run that led to the demise of Silicon Valley Bank (SVB) two months ago has sent tremors through the industry, pushing banking executives to devise robust strategies against similar cyber threats.
Turning point: Silicon Valley Bank
SVB’s collapse has been a turning point for U.S. financial institutions, showcasing how a ripple of online concern can morph into a tsunami of fear, affecting deposit withdrawals and stock market stability.
The unprecedented incident saw depositors yanking out $1 million per second from SVB, leading to its downfall within a mere 10-hour span.
“Once, social media risks were primarily reputational. Now, it poses existential threats, such as deposit flight risks,” comments Sumeet Chabria, founder of ThoughtLinks, a banking consulting and advisory firm.
The drama unfolded when SVB announced the sale of securities and capital raising. Concerns surrounding its financial health became a Twitter fodder among the bank’s Bay Area tech clientele, leading to a withdrawal frenzy via mobile and online platforms.
Adapting to a new risk environment
These recent crises have propelled smaller lenders to update their emergency response and risk capabilities. There is an increasing realization that strategies for business continuity must now account for such cyber threats.
Across the U.S., bank executives and directors are steering their firms to incorporate social media into risk management plans. “We’ve been tasked with devising strategies to measure, prepare for, and respond to internet-related risks,” stated one executive who requested anonymity.
In a proactive step, banks are reaching out to disgruntled customers voicing their grievances on social media platforms, attempting to diffuse potential crises early. “We want to nip it in the bud,” another executive added.
Greg Hertrich, head of U.S. depository strategies at Nomura, asserts that ignoring the impact of a bank’s social media presence on depositor behavior is a significant disservice to stakeholders and depositors alike.
Community engagement: A buffer against misinformation
The aftermath of the SVB incident has seen smaller lenders take a focused approach in understanding their depositor demographics. They are also engaging with influential community members to counter misinformation.
Banks are now using platforms like Twitter, LinkedIn, and email to fact-check and provide resources to their depositor bases. This proactive communication aims to convey accurate information and assure customers of their fiscal health.
Even the heavyweights in the banking industry, such as JPMorgan Chase & Co and Citigroup Inc, have acknowledged the game-changing role of social media.
Regulatory scrutiny and the way forward
Regulators, including the U.S. Federal Deposit Insurance Corporation and the Federal Reserve, are not turning a blind eye to this evolving landscape. The accelerated pace at which technology can spur bank runs has not gone unnoticed.
The Financial Stability Board, an international body, is also probing into the role of social media in the recent market upheaval.
“Banks are cognizant of the risks. They understand the need to dedicate more human resources to social media monitoring,” observes Jim Perry, senior strategist at Market Insights. However, for many smaller lenders, this shift is yet to become a priority.
The turbulent world of social media presents uncharted territory for U.S. banks, which are now scrambling to adapt. The aftermath of the SVB incident serves as a stark reminder that a strong online presence is not just about branding – it is now, undeniably, a matter of survival.
