On their own, social media posts may be unlikely to drive a run on a bank’s deposits, but they are increasingly a factor that banks can’t ignore, says S&P Global Ratings.
In a new report, the rating agency said banks should monitor social media traffic as part of their liquidity risk management efforts.
“Digital chatter has the potential to accelerate deposit outflows at structurally weak lenders and has been a factor in some recent bank failures, most notably the March 2023 collapse of Silicon Valley Bank,” it said.
At the banks that failed — or nearly failed — last March, there were a variety of underlying issues, S&P said, such as financial imbalances, structural weaknesses, and risk management and governance failings.
“Yet, once a bank is vulnerable to liquidity stress, social media activity (regardless of its veracity) can quickly expose weaknesses by eroding client confidence and accelerating deposit outflows,” the report said.
This is particularly important at a time when high interest rates have intensified the volatility of deposits, and technology has reduced the barriers to shifting deposits to higher-yielding products.
“In this context, social media further complicates banks’ deposit management,” it said, noting that this can accelerate liquidity flows “particularly when clients are also exposed to negative sentiment.”
Additionally, social media poses a greater risk to banks of facing false or misleading allegations that result in short-term reputational damage and bank runs.
“[T]his risk has increased with the growth of so-called deepfake attacks, which convincingly manipulate or create images, videos and audio to mislead people,” it said.
The report also noted that private forums on platforms such as WhatsApp, Signal and Discord pose different risks than public platforms (Facebook, Instagram and LinkedIn), where information can be monitored by banks and regulators.
“Dissemination of malicious information can be difficult to monitor in private groups, limiting the ability of banks and regulators to react effectively. Meanwhile, open platforms can quickly reach massive audiences, making damage control difficult,” it said.
S&P noted that regulators in certain jurisdictions are reportedly examining the potential impact of social media on bank liquidity, which could lead to changes in deposit rules to better capture the risk, particularly for uninsured deposits and for flighty digital deposits.
“Banks are likely to respond by allocating greater resources to assessing and controlling this non-traditional risk factor,” it said.
While social media is unlikely to be the sole driver of a bank run, “with about five billion users and an ability to rapidly distribute (sometimes false) information, its potential to stress liquidity buffers shouldn’t be ignored,” S&P warned.