The news broke on a Sunday in March — regulators had taken over Signature Bank.
Not only was it the second failure in just a few days — Silicon Valley Bank had met the same fate on that Friday — but the third largest in U.S. history. (Silicon Valley Bank was the second.)
There was wall-to-wall news coverage about these events. Speculation about the future of other institutions and the health of the industry overall spread across social media in a way that banks hadn't been forced to grapple with during prior crises. Twitter was still in its infancy when the 2008 financial crisis struck, while other platforms, like TikTok and Instagram, weren't even around yet.
"You could see a storyline develop on Twitter then a few hours later, you could see it on TV," said Chris Donahoe, co-head of U.S. operations at Edelman Smithfield, a communications firm. "You could see in real-time how hot takes and lines of inquiry would develop on social media and evolve across the media spectrum."
That meant bank executives had to quickly decide whether to issue a public statement reassuring customers of the safety and soundness of their own institutions. But saying something would risk inserting the bank's name into a conversation about other banks' failures that had nothing to do with the soundness of their institution. Staying silent was also a risky proposition as customers or others could make incorrect assumptions about the bank.
Lori Meads, president and CEO of Seamen's Bank in Provincetown, Massachusetts, decided to err on the side of transparency. The bank drafted a statement that had a confident and reassuring tone and included facts, such as Seamen's having a strong liquidity position. The information was mailed and emailed to customers and available in the bank's branches.
"I didn't want to come across as alarmist," she said. "Silence is the worst because then people will assume and make up their own judgments of what is going on."
During a time of uncertainty, it's important that executives are transparent with key stakeholders, including staff members, shareholders and customers, about the state of the business. But at the same time, they must be careful not to inadvertently create a panic, experts said.
"The correct answer is not always obvious," Donahoe said. "You might be working with partial information. Banks are making the best decision in a really challenging environment."
Thinking through the crisis
The first question CEOs should ask themselves is whether a public corporate communication would be more beneficial than detrimental, said Greyson Tuck, president of Gerrish Smith Tuck, a law firm in Memphis, Tennessee. Determining that is not always easy and will largely depend on the bank's specific position.
Management teams should have completed some of this work before a crisis erupts by running through various scenarios to determine what actions they might take, and what, if anything, would need to be said. Most banks have done a good job of being prepared for issues that have become more routine, such as a cyberattack, but many must do more to be prepared for other types of problems such as a liquidity event, said George Morvis, president and CEO of Financial Shares Corp., a financial services consulting firm based in Hinsdale, Illinois.
"It's the stuff you haven't been through recently that you need to think about," Morvis added. "You need to be very detailed in the scenario planning. It's a complex area, but I don't believe a lot of banks are paying enough attention until it's too late."
Declining to release a public statement doesn't mean the management team can relax, attorney Tuck added. They need to make sure that frontline employees know how to address any questions from customers who may call or visit a branch.
"If a customer comes into a branch and says, 'I saw this bank out in California failed, do I need to be worried about my deposits,' the worst answer would be, 'I don't know what you are talking about,'" Tuck said. "Every bank needs to provide some level of education to employees so that they are able to appropriately react to any comments."
At the $493 million-asset Seamen's Bank, Meads took multiple steps to ensure that staff members understood what had happened at Signature Bank and Silicon Valley Bank. She sent out an email to all workers, explaining the events that had unfolded in the previous few days. She also attended a branch manager meeting and one for customer service representatives and reviewed key pieces of information, such as the bank's capital ratios being higher than regulatory requirements and its investment strategy.
The bank also took messaging it had written for customer communications and transformed it into a frequently-asked-questions guide for employees to use to help customers. Creating the FAQ ensured that the messaging was consistent across the bank.
In the end, Seamen's Bank fielded very few concerns from customers, though one gentleman did stop by a branch to chat about the turmoil. Employees ended up printing out some information, including details about deposit insurance, for him to take home since he didn't have a computer, Meads said.
"Some employees didn't understand how a bank could fail," Meads added. "If employees are feeling confident in what they are saying to customers and understand it, it just further promotes reassurance to the public."
What needs to be said
If a management team decides that something needs to be publicly released, there are a few points they must consider. The first consideration should be what they will send out to customers, according to Tuck.
During the uncertainty in March, many community bank and credit union CEOs took the time to educate consumers on how their business model was different from that of Signature and Silicon Valley. That was a good strategy, experts said.
However, Donahue said that banks should go even further. "The impulse to say 'We are different is correct,'" he said. "But banks should go all in on that impulse and do a full-court education for members of the media, investors and depositors to help them understand what is different and what the management team is doing.
"It is not enough to just put out a press release," he added. "You have to roll up your sleeves and help people understand at a deeper level what is special about your institution."
Ciaran McMullan, who served as president and CEO of Suncrest Bank before it was sold to Citizens Business Bank last year and now advises banks and fintechs, said that any and all messages need to be clear and concise. CEOs should emphasize how their banks serve a range of industries and have a diverse customer base, he said.
Those types of messages could help assuage customers' fears since the regional banks that failed recently were concentrated on certain sectors. Signature had been focused on the cryptocurrency sector in recent years while Silicon Valley Bank was well-known for serving the technology industry.
"I think this mini-crisis actually helps to showcase the strength of community banks and mid-sized banks," McMullan said. "The banking system is built entirely on trust."
Experts also said it's essential that messages don't raise new questions or concerns, which was a problem for Silicon Valley Bank. For instance, on March 8, the bank released a statement saying that it had sold $21 billion of its securities portfolio at a $1.8 billion loss. Management also said the bank would raise $1.25 billion through a stock sale. However, banking experts criticized the press release for not providing enough context about its plans.
"For many of the bank's customers, it came out of the blue and didn't provide any context, which raised more new questions while providing no answers," Donahoe said. "Any time you're generating urgent questions from stakeholders and those questions are met with an information vacuum, you're in a vulnerable position."
Secondly, banks need to consider who they will send the information to, Tuck said. Does the bank reach out to every customer in some way? Does the institution target only customers with deposits over the insured limit?
Those decisions will influence the third item that banks must consider — how to disseminate the information. For banks with a strong relationship-based model, having bankers reach out to their individual clients may make the most sense, McMullan said. Otherwise, something like a press release or a letter from the CEO could work, he added.
Contrary to popular belief, a significant number of customers do take the time to read communications institutions send out. More than 60% of customers said they read through bank communications, according to a 2021 survey from Pinkston, a strategic communications firm based in Falls Church, Virginia. Less than 12% said they normally don't.
That same survey found that about 60% of customers said they would pay attention to communication sent out via email while roughly 40% said the same for a text or phone call. About a third said they would pay attention to information provided in person. (Respondents were allowed to select up to three choices.)
Consistent open dialogue
Perhaps one of the biggest struggles during the crisis in March was for executives' assurances about their bank's stability to not sound disingenuous. A few days before its failure, Signature released a statement that outlined its strengths, including "a diversified deposit mix, with more than 80% of deposits coming from middle market businesses" and "a high level of capital as evidenced by a common equity tier 1 risk-based capital ratio of 10.42%." Just days later, the institution was taken over by regulators.
Consumers took note of this, and it made them suspicious of similar statements from other banks.
"It's hard for banks to be taken seriously when they all [say] the same thing before insolvency," one person wrote on Twitter after First Republic Bank in San Francisco released its own statement about its solvency.
The $212.6 billion-asset First Republic declined to comment for this story. It was subsequently taken over by regulators in early May.
"It's the proverbial college athletic director," Tuck said. "The college says, 'We stand completely behind our coach even though we have lost all our nine last games.' Any time you see that, you know that the coach is fired. This is sort of the same thing."
Listening to all of the questions customers and employees have is an important way to counteract this. Ensuring all communication is fact-based and transparent is another way to prevent doubts, Donahoe added.
Oakworth Capital Bank in Birmingham, Alabama, is consistently communicating with customers through thought leadership pieces that are posted to its website. John Norris, who is responsible for Oakworth's investment management services, writes regular blog posts on a variety of topics, including macroeconomic events. The bank also hosts a podcast. Oakworth's customer base is largely businesses whose owners are deeply interested in what's happening with the broader economy. They have come to appreciate the bank's efforts to keep them apprised of macroeconomic issues, said Scott Reed, CEO and chairman of Oakworth.
The $1.3 billion-asset bank opened in March 2008 as a financial crisis was gripping the country. As a result, management learned the importance of over communicating with customers, Reed said. Oakworth approached the current turmoil in much the same way, with Norris addressing Silicon Valley and Signature's failures in his blog. The bank also provided training and information to employees so they could meaningfully discuss the events with any concerned customers.
Since the bank is consistently discussing macroeconomic issues with customers, talking about the recently failed regional banks seemed like a natural fit, Reed added. He believes that consistency ensures that customers can trust the information that Oakworth is putting out.
"We sort of laugh that when times are really good, it sounds boring to talk about safety and soundness," Reed added. "Internally, we describe this as it doesn't matter until it matters.
"The subtle message is that the team at Oakworth is attuned to what is happening in the world, how it impacts the bank and by extension customers' businesses," Reed said about how its customers view their thought leadership. "We have that ongoing communication with them."
