What to Do About the Surprise Risks of Social Media and Self-Service Tools

A lot of banks and credit unions have taken pains to point out how they are different from the two large regional banks that failed. But what should give all bankers pause are two things that they likely have in common with the failed institutions: social media and self-service tools for customers to access and move money. Those two factors played a role in the run on Silicon Valley and Signature banks, causing a liquidity crisis and prompting regulators to step in. Now the task ahead for all financial institutions is to create a plan for how to monitor these unexpected reputational and operational risks and respond swiftly and appropriately when the need arises. Get ready for some new twists in risk management.

With the collapse of Silicon Valley Bank and Signature Bank, we have seen some new dynamics play out that were not at the forefront of previous bank failures. In coming weeks, more details will come to light, and there will certainly be case studies written. However, there is some information available now that all financial institutions should act on.

Two factors in these failures are new: social media and self-service tools for customers to access and move money. Both played a role in the run on these banks, causing a liquidity crisis and prompting regulators to step in. These are risks that financial institutions need to account for in their incident response planning and enterprise risk management.

We don’t need to wait for the case studies to tell us this.

Actively Manage Reputational Risk on Social Media

Social media has become a driver and a primary source of information in our modern society. Information is posted, tweeted, and shared rapidly on platforms that are virtually free for users and that are at our fingertips, if we’re honest, multiple times a day. Users see information from their social networks and from influencers they follow.

As bankers, particularly community bankers, we use social media to build our brand, spotlight our community involvement, and highlight our employee and business accomplishments, which are all positive things. Social media is an outlet that enables us to build our community of customers and supporters. But how many financial institutions have a strategy for managing reputational risk on social media?

Plan Ahead:

What happens if someone, particularly if that person is influential, tweets a concern about the viability of the financial institution? Whose responsibility is it to respond? What is the most effective response? Have you tested this process?

A person may tweet that they love a particular branch or a particular employee of a bank, but they also can use the same platform to vent frustrations about the bank or customer service challenges. We are used to that. But what happens if someone tweets concern about the viability of the financial institution, a concern that could, as we have seen, spread like wildfire?

A high-profile individual or someone with a large circle of influence in an industry can drive business to you, or they can drive business away from you with significant impact. A tweet of a picture of lines outside of a branch can incite panic in our real-time society.

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Respond Rapidly to Negative Social Media

As bankers, we need to assess the reputational risk to our institutions from negative social media and have a plan to address and mitigate those risks. Many times, a process like this becomes part of a financial institution’s incident response plan. The process should include the ability to monitor social media posts that mention the bank.

It is easy to monitor your own social media handles for incoming messages or comments that your institution is tagged in. It’s harder to monitor public sites for mentions of your institution that may not include a direct tag. But there are tools available to help monitor keywords for your institution. The caveat is, if a user labels a post as private or is in a private network, it is nearly impossible to view and respond.

On and off social media the institution should understand its influencers. Off social media, bankers know who the rainmakers are in their markets and who has large circles of influence, and they stay connected with those individuals. We should do the same on social media, understanding who is interacting with the institution, positively or negatively.

“It is easy to monitor your own social media handles for incoming messages or comments that your institution is tagged in. It’s harder to monitor public sites for mentions of your institution that may not include a direct tag.”

We need to not only have a written plan that defines roles and responsibilities for monitoring, managing and responding to social media, but we need to test it, so that when an incident occurs the bank can respond rapidly and appropriately. Nothing can drive the need for a rapid and organized response home more than reading that Silicon Valley Bank had a $42 billion outflow of deposits in a day.

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Consider Rules Around Money Movement

Coupled with social media’s impact on these two bank failures was the impact of customers’ ability to move funds quickly without having to physically go to a branch. Banks have offered customers self-service tools for money management for years, as a way to improve both the user experience and efficiency.

“Long gone are the days when we looked at the cash on hand at each of our branches.”
— Kimberly Kirk

Many banks that had lagged behind in features — mobile and remote deposit, online wire and ACH origination, transfers between accounts held by the same individual at multiple institutions, or even person-to-person payments — implemented them during the pandemic to allow customers to manage their funds when branches were closed or operating with limited services.

Increasing the ways people can manage and move money increases customer satisfaction, but it also increases the need to have controls in place to monitor inflows and outflows of deposits in real time.

Long gone are the days when we looked at the cash on hand at each of our branches. Today, with the ability for a customer to originate wires from a business mobile application, or perform a transfer to an external account, the movement of funds is much faster and easier for the customer.

Banks need to employ both dollar limits and velocity limits for these transactions, not only to help prevent fraudulent transactions, but also to help throttle volatility in the balance sheet. Transfers of large amounts should have an escalation and notification process internally at the bank for awareness and for funds management.

As our industry moves forward with faster payment methodologies, we should also revisit our risk management and funds management practices to ensure we have appropriate processes and tools in place to manage these channels and their impact on the institution’s operations.

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Lots of Lessons on Risk Still to Come

We will all have many risk management lessons to learn from what happened at Silicon Valley Bank and Signature Bank. Undoubtedly those lessons will involve funding risks and concentration risks, along with the reputational and operational risks discussed above. There will also be some lessons on the management required when entering new business lines, particularly when they are perceived as risky.

At the end of the day, what we do centers around knowing and communicating with our customers and communities, especially in challenging times, something I believe community banks do particularly well.

Picture of Sherzod Odilov Fischer, chief operating officer at timberland bankAbout the author:
Kimberly Kirk is the chief operations officer at the $2 billion-asset Queensborough National Bank & Trust Co. in Louisville, Ga. She is also a former bank examiner for the South Carolina Board of Financial Institutions. She was named a standout in community banking by American Banker as part of its 2021 Most Powerful Women in Banking program.

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