Ten strategies to prepare for local rumors caused by the Silicon Valley and Signature Bank collapse.
The talking heads, bloggers, pundits and rumor spreaders are at it again. Silicon Valley Bank and Signature Bank fails because of a short-term liquidity crunch and Signature Bank has followed. Despite the removal of the $250,000 FDIC insurance cap,the next thing you know, your bank's customers want to withdraw their deposits immediately, even if the balance is below the FDIC insurance limit. How should you prepare for that to protect your long-term financial health?
- Advance planning is essential. The FDIC almost
always shuts down banks on Friday so that they can permit
withdrawals the following Monday morning. This may be good for some
depositors, but it allows misinformation to circulate and build
panic nationwide over the weekend. You never want to unexpectedly
find customers at the door on Monday morning waiting to withdraw
their deposits. Even worse, you don't want take your crisis
management plan off the shelf and shake off the dust because you
haven't looked at it for years.
- Review your existing crisis management plan.
According to regulatory guidance, you should already have a plan in
place. If it needs tweaking, do that immediately. Common problems
that we have seen, and common criticisms by examiners, relate to
failures to update the plan as officer turnover requires the
re-assignment of responsibilities. The plan must conform to your
most recent risk assessment and adequately address liquidity risk.
Board approval should have occurred within the past year.
If you have any cryptocurrency exposure, because either you have cryptocurrency customers or you have taken cryptocurrency as collateral for a loan, make sure that it is part of your most recent risk assessment. If you have such exposure, verify that it is addressed in other applicable policies, such as your loan policy, your investment policy or your new products policy.
- Designate a crisis manager who is able to get his or
her arms around an entire issue and adjust plans and resources as
needed to deal with the ever-changing landscape. Consider
whether this should not be the CEO because, after all, you still
have a bank to run.
- Designate a spokesperson in advance who will put your
bank's best foot forward. This is difficult, because
the CEO of the bank may not be the best choice. The CEO may be a
brilliant banker and an expert tactician who develops strategies to
make your bank the best in your community, and who is wonderful at
developing positive relationships with employees. However, he or
she may not be the best officer to answer rapid fire questions from
members of the media looking for a scoop at any cost.
- Consider retaining a media consultant now who will be
available in the future when needed. Your first search for
a consultant should not be after you see the line at the door on
Monday morning. If you decide to retain a media consultant, the
spokesperson should work closely with the consultant.
- Train every employee how to respond to questions from
customers, the media and government officials. Anticipate
some likely questions that stakeholders may ask; prepare responses
to those questions; and have them ready. In most cases, employees
should refer inquiries to the spokesperson or the CEO. Employees
should not discuss bank business with friends and neighbors because
that is how rumors can start. "Did you know that John's
next door neighbor works for Friendly National Bank and he said
that the CFO was on the phone with the Fed all day yesterday
talking about their borrowing line of credit." True story
– I knew that President Nixon was resigning two days before
he announced because my friend, who worked for a Congressman, told
me that his friend, who worked at the White House, told him that
every low level staffer at the White House was photocopying his or
her resume.
- Consider preparing a press release in advance.
Talk to your media consultant about whether you should
pre-emptively issue a press release that highlights your strength.
If you decide not to issue it unless there is a problem, you will
still have to revise it at the last minute, but it's faster and
easier to start from an existing draft. Many crisis management
experts advise their clients to take responsibility, but make sure
that you do not shoot yourself in the foot. Avoid negative
statements unless absolutely necessary. A recent press release by a
bank regarding cryptocurrency stated that the bank might be unable
to meet depositor withdrawal demands if there is another major dip
in the value of crypto currency. As the subsidiary of a publicly
traded bank holding company, they may have felt an obligation to
make the statement, but there are a lot of ways to address the
issue. Stabbing yourself in the eye with a sharp stick may not be
the best choice!
- Make sure that all liquidity lines of credit are in
place, ready to go, and that the collateral for advances is already
pledged and delivered. You do not want to try to borrow at
the Federal Reserve discount window only to find that you must
first pledge $20,000,000 of loans. You should have liquidity lines
of credit at more than one lender, because your correspondent bank,
where you have a liquidity line of credit, may be facing the same
liquidity crunch that you are.
- Visual imaging and presentation is extremely
important. We learned this when an employee at the bank
facing a run was assigned to keep the floors and counters clean,
keep customers in neat lines at teller windows, and hand out coffee
and cookies to those waiting. When the cash came from the Federal
Reserve, we used it to build a wall of packets of $20 bills behind
the teller counter. That finally broke the bank run. A major New
York City newspaper had a cover photo the next day of a grinning
bank president holding packets of cash with a wall of money behind
him.
- If you are the unlucky one who happens to face a panic, debrief everyone afterwards. No one is perfect and your bank may have made mistakes, even if you come through the entire process unscathed. Identify mistakes and revise the crisis management plan if necessary. This will educate your staff and improve your ability to function in the future.
Is crisis management a waste of time? We all hope that you never implement your crisis management plan. However, you are not wasting an opportunity to show your regulators that you are prepared. Years ago, I debated a nuclear recovery plan with bank examiners. Was there a nuclear attack? No, but my client got gold stars from the FDIC a because there was a plan to implement, if ever needed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.