The evolution of crisis communication in banking | Panda Anku

Through Kamjar NaficyFounder and Director, KNECTCOMMS

BBanks are more vulnerable than ever to a variety of potential crises. These crises are often compounded by 24/7 news cycles, volatile social media, and unprecedented social, economic, and geopolitical disruptions. With this in mind, banks need to step up their crisis communication efforts if they are to execute strategies with confidence, maintain resilience and manage reputations.

Strategic priorities in the crisis

Proper crisis communication is critical for all organizations. But banks face heightened risks when a crisis hits. In addition to complying with strict regulatory requirements, banks operate business models based on trust. In retail banking, a crisis of public confidence can lead to an existential crisis for a bank and contribute to systemic risk for the entire financial system. In corporate and investment banking, the ability to provide complex, high-stakes financial services to institutional clients depends on earning their trust in a demanding marketplace.

The bank’s communication priority during a crisis has two priorities: shaping its response based on containing and resolving the impact on stakeholders, while preventing loss of trust among customers, counterparties and regulators.

The four p.s

The impact of a crisis is as determined by response and level of preparedness as the crisis itself. Banks should be guided by the four Ps – prepare for potential threats and practice.

A crisis communication plan should be developed and integrated into the broader crisis management or business resilience plan. It is intended to define the activities of the board and the management team in the event of a crisis. It should address who will make decisions, who needs to be involved and in what capacity, who will be called in for support, who the delegates are if certain people are unavailable, and the escalation process for information sharing.

Assembling an effective crisis communications team is critical. It should include members of the executive team and representatives from business operations, finance, treasury, legal, compliance and of course communications. Banks should test the crisis communication plan and team effectiveness with regular scenario planning and crisis simulations. This helps ensure both the plan and the team are fit for purpose and builds team skills and confidence. Banks can prepare for a number of common types of crises such as IT outages, cyber security breaches, vendor disruptions, market shocks, staff failures or financial mismanagement.

When a crisis hits, organizations need to quickly gather all the facts about the incident, decide what actions to take, and implement those actions, including defining and managing the appropriate communications. They should be prompt in their answers – and appear promptly. Having a plan and practicing it makes it a lot easier during the firestorm of a crisis.

Put the audience first

Banks should identify and consider all the different components they need to address in a crisis. That’s easier said than done. A crisis can potentially involve multiple stakeholders, including customers, employees, regulators, auditors, the board, shareholders, analysts, the media, government, regulators, lenders, counterparties and providers, to name a few.

Communication messages and resources can be prepared for common types of crises – for example templates for press releases, policy statements and talking points for use with media, employees, customers, counterparties and suppliers. Content should be tailored for each audience, but also consistent and consistent so the organization speaks with one voice.

It is important to acknowledge the damage caused to those involved and explain how the incident will be contained and resolved. Any discrepancy between what a bank promises to do and what it actually does immediately undermines trust. For example, an IT failure during a data migration at TSB Bank in 2018 left customers without access to online banking services for several weeks. The bank successfully handled the initial communications, quickly acknowledging and apologizing for the incident in the media, on its website, on social media and even in advertisements. But their thorough and quick communication efforts were ultimately thwarted by the bank’s slow performance in actually solving the issues. This led to allegations that the bank’s communications had been misleading, causing significant financial and reputational damage and the resignation of the chief executive officer (CEO).

In a crisis, it can seem as if a bank is responding to a cacophony of wants and needs from a variety of affected groups. Without a well thought-out, multi-stakeholder approach, a crisis response can quickly falter. For example, the credit union’s failure to respond to a series of crises in the 2000s was due in part to a lack of coordinated communication between a wide range of different stakeholders. Financial mismanagement and managerial misconduct garnered high-profile, sensational media headlines for several years, eventually drawing in regulators, legislators and even the Methodist Church, which had ties to the bank’s chairman. The bank failed to recognize and address the complex interplay of these multiple stakeholders, analyze the risks involved, and anticipate potential issues. Although the bank has recovered, its poor handling of these issues contributed to significant financial and reputational damage and its near-collapse.

ESG and new risks

Banks should not only plan for traditional crises such as IT outages, employee misconduct and financial mismanagement, but a whole range of new potential crises related to ESG (environmental, social and corporate governance) and social activism.

Timing and judgment are extremely important in these situations, especially when the crisis originates or is greatly amplified by social media. For example, a tweet from Chase Bank in 2019 intended as a playful money-saving suggestion sparked an immediate backlash on social media. It was accused by a barrage of critics, including the media and high-profile politicians, of being unmusical and insensitive. The tweet became a lightning rod for criticism of the bank’s overdraft fees, mortgage policies, CEO salaries and even its role in the financial crisis more than a decade ago. The bank quickly deleted the tweet and promised its customers to learn from the experience. The incident could easily have spiraled out of control. The bank prevented this by reacting quickly and transparently, acknowledging the misstep and nipping the situation in the bud before it could escalate any further.

looking ahead

Banks must take meaningful steps to assess current and future reputational risks and prepare for scenarios before they materialize. But they should also learn from past crises. You should conduct an ex post review to fully assess both the causes of a crisis and the effectiveness of the response. You should consider what could have been done differently and what changes are needed to prevent a similar situation.

Self-inflicted crises related to a bank’s behavior or competence often have the greatest negative impact on brand value, share price and media coverage. In these cases, the lessons learned are typically related to solving cultural problems such as behavior and conduct. There has been some improvement in this area since the financial crisis, but there is still much to be done.

Communications teams can assist in this effort by acting as the conscience of the organization. They are tasked with shaping the bank’s story, but they should be quick to alert management when the perception created by a bank’s message diverges from the organization’s reality. Likewise, in the event of a crisis, words must be followed by deeds and deeds must follow. Companies must follow words with deeds. Like any communication, crisis communication fails if it is not authentic.

With increasing competition between established financial institutions and new fintechs – and a greater focus on ESG and sustainability – crisis communication is likely to become a battleground for winning hearts and minds. Organizations that are successful in crisis and problem management will ultimately be successful in creating and maintaining trust, a critical source of competitive advantage in financial services.

ABOUT THE AUTHOR

Kamjar Naficy is the founder and managing director of KNECTCOMMS, a strategic communications consultancy for the financial services industry. He previously held senior corporate communications positions at JPMorgan Chase, the London Stock Exchange Group and UniCredit. He graduated from the London School of Economics and Cambridge University.

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