NEW YORK (CNA) – Bankers are beefing up risk management, monitoring and emergency procedures around the use of social media after an internet-fuelled run toppled Silicon Valley Bank two months ago and sparked turmoil in the industry.
In board rooms across the United States (US), executives are devising programmes and plans to counteract online threats including rumours 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 USD1 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 founder of ThoughtLinks, a consulting and advisory firm that works with banks, Sumeet Chabria.
The former chief executive officer (CEO) of Silicon Valley Bank Greg Becker blamed social media as an “unprecedented” factor in the lender’s demise.
Depositors withdrew USD42 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 programmes, 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.
