Basil Jarrett | The US banking crisis: Communications lessons for us

Banks and financial institutions seem to be in perpetual crisis these days. Employee theft, bank fraud and senior management misconduct have all helped to jiggle public confidence in the safety and security of our savings, deposits and investments. But the challenges being faced in Jamaica today probably pale in comparison to what we’ve seen happen in the US these last few weeks, with the collapse of Silicon Valley Bank (SVB) and Signature Bank, both within days of each other.

To be clear, what has happened to these two large US banks is in no way similar to what has transpired here in Jamaica. Whereas we seem to be dealing with an upsurge of bankers with particularly sticky, well-manicured and nail-polished fingers, our US counterparts seem to be contending with a different type of crisis, specifically the type that happens when too many depositors withdraw their funds all at once.

AVOID THE CONTAGION

Those withdrawals, coupled with investment losses due to last year’s rapid rise in interest rates, led to the closure of SVB and had a ripple effect throughout the entire banking system, forcing regulators to step in to protect depositors. The move wasn’t swift enough for Signature Bank, however, as their customers, now fearful of a similar collapse, also made a deposit run on the bank, withdrawing over $10 billion in deposit in the process.

What has happened at both SVB and Signature Bank is, of course, a lesson for bankers in how not to over-leverage themselves. But the ripple effect it had on lowering bank stocks and triggering a panic run at other institutions also holds valuable lessons in how to manage communications around crises, particularly in the very interconnected banking sector. When the Federal Deposit Insurance Corporation (FDIC) shuttered SVB, it must have known that a contagion-like effect would immediately be created with devastating consequences, especially for some of the smaller regional banks.

DECISIVE ACTION

In fairness, the US Federal Reserve, the Treasury and the FDIC did issue a joint statement that SVB depositors would have access to “all of their money” and that US taxpayers would not have to bear the cost. But despite the joint release, fears persisted, reverberating as far away as Germany where investors watched nervously as the stock market plummeted amid concerns that more banks would be shuttered as a result. To my mind, the joint release was not enough. The moment that the decision to go into SVB was made, a comprehensive crisis communications plan should have been given top-level priority in order to prevent or at least mitigate the ensuing deposit run and the crisis of confidence in the banking system that it created.

For the record, I strongly believe that by stepping in the way they did, US regulators took the correct action necessary to reduce the risk of further bank failures and to reassure depositors of both SVB and Signature Bank. But I also believe that there were several communications missteps that ought to have been avoided, given that in times of crisis, more sophisticated communications is needed to drive confidence and assurance, not less. In that regard, SVB is even more culpable for the communications failures which led to the events of the past few weeks.

COMMUNICATIONS MISTAKES

Take SVB’s decision, for example, to issue a sudden press release last week Wednesday, announcing that it was desperate to raise cash through a stock deal. This backfired horribly as the release made no mention of why the move was being made or gave any other justification for the offer. This immediately triggered wary investors and depositors who were at once suspicious of the motive. In such an instance, a proper narrative should have been included, in order to help give the situation context and clarity. In issuing the release, SVB also erred by focusing mainly on regulators, analysts and other banks, and not their most critical stakeholder audience – customers. If they had done a thorough Target Audience Analysis, they would have realised that these persons get their information mainly from wider, more tech-savvy sources such as Twitter and messaging groups, and not from the press releases and newspapers. The timing of the communications was also problematic as it came right on the heels of the collapse of another smaller bank, Silvergate Bank, which only served to spook the bejesus out of already jittery SVB customers. Finally, as worries grew and suspicion mounted, SVB went silent, only to be broken 24 hours later by its CEO’s message to “stay calm” 24 hours later. That was the last straw.

By no means am I suggesting that if SVB did the things that I am recommending, then the entire crisis would have been averted. No amount of PR could have brought back depositors’ money or saved their investments. But good crisis communications can help to salvage the unsalvageable, and to slow the momentum just long enough to give you some breathing room to think, decide and act. Most importantly, however, it can be critical to helping you to recover more quickly and with more resilience. For those of us here in Jamaica, I hope that we are watching and learning from these mistakes.

Major Basil Jarrett is a communications strategist and CEO of Artemis Consulting, a Communications Consulting firm specialising in crisis communications and reputation management. Send feedback to columns@gleanerjm.com