Prevention of Bank Failure and the Role of Social Media in Banking

The collapse of the Silicon Valley Bank (California) in 2023 was the second-largest bank failure in US history. A lack of diversification (a higher number of customers were high-tech and healthcare venture capitalists) and a classic bank run (too many customers withdrew their deposits simultaneously) were considered the primary causes of that bank's failure. Silicon Valley Bank’s case clearly illustrates that no bank is too big to fail, and there should be specific preventive measures to combat bank failures. As the backbone of the economic development of the vulnerable rural community, community banks certainly have no luxury to entertain a similar type of financial crisis. In this study, the opinions from two Eastern Kentucky regional community bank administrators were collected to address their banks’ responses to the 2023 bank closures. Each bank administrator went through a 40- to 45-minute interview to address information related to (1) the service type and customer portfolios of the bank, (2) the asset and liability management (ALM) practice of the bank, (3) expected regulatory changes and policies for mitigating risk, and (4) utilization of social media in banking. The administrators’ comments indicated the importance of diversifying the banks’ funds and income, engaging in the ALM process, preparing a contingency funding plan, and advocating for regulatory changes to prevent bank failures. Although the surveyed banks had unique social media approaches, there is still potential for widely utilizing social media platforms to educate customers about risk and to promote business incentives and opportunities for driving profitability.