Banks should monitor social media as part of their liquidity risk management. 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. S&P Global Ratings believes social media is unlikely to be the sole driver of a bank run, but with about five billion users (see chart 1) and an ability to rapidly distribute (sometimes false) information, its potential to stress liquidity buffers shouldn't be ignored.
Chart 1
What's Happening
Bank failures (and near-failures) in 2023 were often characterized by substantial and rapid deposit outflows exacerbated by negative social media. In all cases the troubled banks had underlying issues, including financial imbalances, structural deficiencies, and notable shortcomings in risk management and governance. 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.
Why It Matters
Interest rate hikes have already increased the volatility of deposits by offering savers the opportunity to switch to better renumerated products (while technology means they can often do so with just a few clicks). In this context, social media further complicates banks' deposit management by:
- Accelerating the dissemination of information, potentially leading to rapid liquidity flows, particularly when clients are also exposed to negative sentiment.
- Exposing banks to greater risk of false or misleading allegations that can cause significant short-term reputational damage and deposit runs. We consider this risk has increased with the growth of so-called "deepfake attacks," which convincingly manipulate or create images, videos, and audio to mislead people.
- Exploiting the lack of client proximity (due to mobile banking) to deliver potentially misleading information.
We see key differences in the threats posed by open platforms (Facebook, Instagram, LinkedIn, and X), which can be scrutinized (including legally) by banks and regulators, and platforms dominated by "private groups" (WhatsApp, Signal, and Discord). 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.
What Comes Next
Recent, though unconfirmed, press reports claim the European Central Bank and Japan's Financial Services Agency are examining social media's potential impact on liquidity. Banks are likely to respond by allocating greater resources to assessing and controlling this non-traditional risk factor.
We also believe regulators, in at least some jurisdictions, could update liquidity rules to better capture the risk of deposit flight, notably on uninsured deposits and deposits deemed slippery due to digital banking.
Background In Brief: A Bulgarian Case Study
In June 2014, Bulgaria-based Corporate Commercial Bank (KTB) and First Investment Bank experienced a surge of deposit withdrawals. The resulting liquidity crunch prompted Bulgaria's central bank to take control of KTB and provide about €1.7 billion of emergency credit lines to banks. Bulgarian authorities later arrested six people for disseminating false and sensitive information regarding bank liquidity and the national deposit insurance scheme.
Political uncertainties, internal conflicts, and allegations of widespread corruption had weakened both banks. But it was false allegations, spread on social media, that triggered the runs and, despite the prior solvency of the banks, required state intervention to avert a wider liquidity shock.
Writer: Paul Whitfield
Related Research
- Tech Disruption In Retail Banking: Country-By-Country Analysis 2023, Sept. 27, 2023
- European Banks: Protecting Liquidity Will Come At An Increasing Cost, June 29, 2023
- The Future Of Banking: One-Click Deposits (Risks Included), April 08, 2021
This report does not constitute a rating action.
| Primary Credit Analysts: | Cihan Duran, CFA, Frankfurt + 49 69 3399 9177; cihan.duran@spglobal.com |
| Markus W Schmaus, Frankfurt + 49 693 399 9155; markus.schmaus@spglobal.com |
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