Nick Puleo

Recent failures in the banking industry represent more than financial shortfalls alone. Those banks collapsed for another reason that’s equally insidious: a failure in communication.

First, Silicon Valley Bank went under. Within 24 hours its customers withdrew $42 billion. Then Signature Bank followed suit. Quickly the crisis snowballed into an avalanche. The federal government intervened. Bank stocks plummeted. Dread grew that the economy might implode. And now First Republic Bank is suddenly gone, acquired by JPMorgan Chase.

Almost before anyone could blink, the United States has suffered its largest bank industry debacle since 2008.

The aftershocks persist, undermining consumer confidence. More than three-quarters of Americans (77 percent) reported being either “very concerned” or “somewhat concerned” about their own bank’s stability, according to a survey by Forbes Advisor and OnePoll. More than half (58 percent) of all customers at small to mid-sized banks were considering moving their money to a larger bank. Clearly, the crisis has damaged the banking industry’s reputation.

Customers were more than afraid; they acted on their fears. First Republic customers withdrew more than $100 billion within weeks. And midsized banks in general – many of which showed no signs of undue stress or volatility – were hit with huge withdrawals, forcing borrowing from federal programs to stay afloat.

As it turns out, none of this had to be. The banking industry could have better managed the cascading hysteria that ensued. They could have responded better to the crisis – communicated better, above all – and in so doing better protected themselves and the public.

Public’s Ignorance Breeds Bias

Of course, the banking industry throughout modern history is no stranger to threats to its reputation. The Great Depression taught us in no uncertain terms that banks are hardly invulnerable to market forces. More recently, the 2008 financial crisis aroused suspicion about banks that linger to this day.

For example, I represented a bank that was hit hard thanks to its role in the mortgage industry back then, specifically the wave of foreclosures that followed the market debacle. It was clear to us that the general public had little or no understanding of how banks worked in general, much less of how they invested assets to support community development. So, we undertook a campaign to educate customers and clear away this haze. In time, its customers came around to recognizing the bank as a force for good, its reputation largely repaired.

That certain players in the banking industry routinely come under suspicion is no big surprise. The industry has maintained a public image characterized chiefly by a tendency to play its cards close to the vest. Highly regulated and conservative and cautious by nature, banks reveal as little information as possible in the course of business and it’s backfired, bigtime.

As the prison warden character famously declares in the 1967 movie “Cool Hand Luke,” “what we’ve got here a failure to communicate.” Let’s face it: The practice of secrecy as a standard protocol – and in an industry responsible for taking care of our money – no longer has any business in global commerce that increasingly prides itself on accountability and transparency.

Plain Speaking Breeds Trust

The lessons that can be learned here are applicable to all organizations, private and public.

For starters, maintain trust at all costs. Like reputation, trust can take years to build and but a minute to lose. Trust is the single most important asset for any business. But banks often prove to be lightning rods for distrust. The 2022 Edelman Trust Barometer showed that trust in the financial services sector in the U.S. declined by double digits since 2019.

Why so? I believe that people will seldom, if ever, trust what they’re unable to understand. And what banks actually do day to day – the services delivered and transactions performed – is difficult for the general public to grasp. Compounding the problem, banks rarely make enough effort to be understood.

The first step toward earning trust is to communicate clearly. Silence is never an option, least of all in the face of questions during a crisis. Forget about pretending everything is fine if it’s anything but. Lack of communication can create a narrative void that winds up filled with rumor and negative press.

As a case in point, Silicon Valley Bank held a press conference early on, but refused to take questions. It issued a press release that sought to explain its predicament but it was incomprehensible. Its CEO attempted to caution against panic, deploying the very word “panic,” thereby triggering precisely what he meant to prevent.

In this instance, a few careless actors have called an entire industry into question. Other banks now need to showcase how and why they’re different.

So, speak plainly and robustly about your business model and why you do what you do. Answer all questions to the best of your ability. Address concern, confusion and complications head-on. Such approaches breed trust.

Yes, this is strategic communications 101. But until and unless this becomes second nature to organizations, this advice bears repeating. Otherwise, some people will never learn.

Nick Puleo is founder and president of Comsint, a Boston-based strategic communications firm, and has counseled banking executives across the U.S. and Europe.