On March 10, 2023, the second biggest bank collapse happened in only 48 hours. Here’s how it happened. Silicon Valley Bank has been a staple for four decades. As reported by CNBC, the roots of SVB’s collapse stemmed from dislocations spurred by higher rates. Startup clients withdrew deposits to keep their companies afloat and SVB found itself short on capital.
This capital crisis came shortly after the collapse of crypto-focused Silvergate bank, and that sparked another tidal wave of deposit withdrawals. The fear was that a bank run at SVB could pose a threat to startups who couldn’t tap their deposits. Customers reported that leadership didn’t instill confidence as their stock continued to sink.
In the end, customers withdrew $42 billion of deposits by the end of Thursday, leaving SVB with a negative balance of $958 million. That same day, an email was sent to customers mentioning it was “business as usual” for the bank. Now that SVB has been seized, those who remained loyal are left uncertain as to when they will get their money.
In short, the bank is now insolvent. So, what does this have to do with leveraging your locality? Well, much like Icarus and his waxy wings, SVB flew too close to the sun and resulted in a 48-hour fireball burning millions of their consumers – and their trust, in the process.
Trust is important when it comes to banking, so much so that 424 American banks have the word in their name. So, the question becomes, “how do you retain that trust and make it real?” Well, it depends on the scale of your bank or credit union.
Public vs Private Banks
A public bank is a financial institution that is owned and operated by the government. In many countries, public banks are established to promote economic development, provide financial services to underserved communities, and support government policies. They may offer a wide range of banking services, including savings accounts, loans, and credit lines, and they may be subject to greater regulatory oversight than private banks due to their government ownership.
A private bank, on the other hand, is a financial institution that is owned and operated by private individuals or corporations. Private banks may offer a more exclusive, personalized banking experience than public banks, and they may specialize in wealth management services for high-net-worth individuals and businesses. Private banks may also be subject to regulatory oversight, but they typically have more autonomy in their operations and decision-making than public banks.
In summary, the main difference between a public and private bank is their ownership structure: public banks are owned and operated by the government, while private banks are owned and operated by private individuals or corporations.
If you are a community bank or credit union, you have an arsenal of tools at your disposal. Now is a great time to dust off those tools and resurface your dedication to the community. You can do that by highlighting your differentiation:
- Community banks and credit unions remain well-capitalized and well-positioned to continue to serve your customers/members as well as the community.
- As a local community bank/credit union, our business model is diversified in terms of our customer/member mix. There is not oversized exposure to any one particular sector.
- Your relationship-based business model continues to focus on the safety and soundness of your financial institution. In fact, you have federal regulators and the board of directors are dedicated to ensuring soundness.
- Because of your commitment to the community and the size of your organization, the volunteer board of directors or President/CEO is part of your community. You can find these FI leaders volunteering within the community, next to you at work, or you can even stop into your FI and have a conversation with them.
- Your customer/member deposit funds are insured both by FDIC and NCUA respectively of up to $250,000 per owner of an account.
Your next step is to dive into your core system and take a look at accounts that are currently carrying a deposit balance of over $250,000. Preemptively reach out to those customers/members with options of how to diversify their funds or relate that based on their situation they are adequately covered by FDIC and NCUA. It is a great time to show your value and knowledge to these customers/members.
Capitalize on Your Trust
Now, it’s easy to wonder if your members trust you. First, take some security in the fact they already do to an extent – otherwise, they wouldn’t be a member. What is difficult to gauge, however, is whether they plan to stay a loyal member.
Generally, financial institutions are doing a great job providing products and services that consumers say they're happy with. Banks post between a 78% and 86% satisfaction scores with their customers. Credit unions are in a similar position, posting similar satisfaction scores to banks. Credit unions have an additional concern, however. Their American Consumer Satisfaction Score has dropped 10 points - from 87 in 2011 to 77 in 2020.
Yet can be tough to understand the mindset of your existing base. In a 2020 Accenture study, only 29% of survey respondents say that they trust their financial institution to look after their long-term financial well-being, down from 43% in 2018.
As a result, many consumers are already finding solutions outside their PFI relationship. They're doing this because they simply don't see their financial institution as the place to go for solutions, and are instead selecting services such as Venmo, Chime, Acorn and other fintech companies that position themselves as “simple-to-use, trusted partners.”
But there comes another question:
What Are Financial Consumers Going Elsewhere For?
According to a FICO study, 70% of participants said they would be "likely" or "very likely" to open an account at a competing financial institution if they offered products and services to meet those big macro-scale unmet needs. What’s the one thing all those needs have in common? They're about feelings, emotions, relationships, and trust – not about great rates and the availability of ATMs. It’s empowerment over commodities (Link to EvC blog).
Reflecting on these statistics, it can be easy to feel like you're about to start bleeding accounts and may as well just start looking for a merger partner now. However, if you’re a private bank or a credit union, your current account holders are also one of the biggest sources of hope.
Champion Your Community
First and foremost, they are already your customers and members! Marketing to and converting a new account is always going to be more expensive than keeping the accounts you have, which means that you've already done some of the hardest work.
In other words, you've got promoters. People who give you a 10 on every NPS survey, would attend every annual BBQ and might just have you on their holiday card list. These promoters can be your best asset, and those relationships are worth nurturing. They're the people who will help defend you when things go wrong and promote any changes you make if you give them the tools to do so.
Now, on the other side of that coin, you've also got the detractors - the people who are so invested in you institution they never want anything to change – and will be very vocal if something does! These loud objectors are also a gift. As the book "Hug Your Haters" by Jay Baer points out, they're giving you the gift of telling you why they're unhappy - and letting you know that they care enough to share. We’re not saying that “there’s no such thing as bad publicity,” we’re saying that this is your opportunity to get the most direct, honest feedback from customers.
They could stay quiet and badmouth you behind your back, instead they project it in the hopes you’ll hear them. So, listen. That doesn’t mean doing whatever they ask, but if you respond and hear them out, that’ll garner some respect.
When it comes to customer satisfaction, while private and public banks have different oversight, their goals are the same. Know that you have a client base with built-in trust and nurturing that can result in significant growth. Be sure to always listen to them, good or bad, and not only will you champion your community, but your FI will also become your community’s champion. You can trust that Epicosity knows the secret to maintain that success. Contact Brand Ambassador Nikki Doherty today and learn how to keep a good thing growing.