Bank industry tries to reassure customers

Since FDIC took control of IndyMac, the industry is attempting to send a clear and strong message

After a run on deposits at IndyMac and a subsequent government takeover of the bank, rumors swirled as to which bank would be next. Analysts offered predictions and media reports asked, "Could your bank be next?" (MSN Money) and "5 signs your bank is the next IndyMac" (Motley Fool). The government and some in the banking industry, perhaps learning from the April breakdown of Bear Stearns, are attempting to reassure consumers and investors and prevent panic, which can wreak havoc in a reputation- and results-oriented industry.

Last week, the chairwoman of the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits, issued an Op-Ed detailing a 10-point list of bank customers' rights, including number eight: "You have a right, if your bank fails, to prompt access to your insured deposits."

The chair, Sheila C. Bair, emphasized the organization's responsibility to insuring US deposits.

"The banking system in this country remains on a solid footing... the FDIC will be there - as always - to protect your insured deposits," she wrote.

"Our response is to get out information about the health of the banking industry," says Andrew Gray, director of the office of public affairs for the FDIC. Consumer-driven awareness remains a key focus for the agency, he adds. It was also incorporated into the FDIC's 75th anniversary public awareness campaign that launched June 16.

Many banks, often reticent when it comes to communicating problems or changes, are struggling with how, as well as how much, to communicate within the tightly regulated industry.

"The meltdown in the financial sector has been the biggest business story of the year," says Steve Frankel, partner at New York-based Joele Frank, Wilkinson Brimmer Katcher. But providing clear and separate messages for corporate customers and investors, as well as consumers, is important, he notes. Avoiding being "tainted" by association to other failed or shaky entities is equally important.

One bank to step forward recently was Washington Mutual, which had shares tumble after the collapse of IndyMac. The Seattle-headquartered savings and loans bank issued a statement July 14, saying, "The company significantly exceeds all regulatory 'well-capitalized' minimums for depository institutions." It came on the same day that Forbes, as well as other media outlets, reported that investors were shying away from mortgage-heavy banks like WaMu in wake of the IndyMac situation.

Frankel believes that the current fallout will create a "lasting impact on how financial institutions operate," and banks now have to be faster in their communications, as well as more transparent and more proactive.

"Problems related to the housing market escalated so rapidly," Frankel says. "To stay ahead of them has to be very difficult."

Carol Kaplan, director of PR for the American Bankers Association in Washington, says that images of lines of people waiting to withdraw their money are not representative of the problem.

"In the vast majority of cases, their money is perfectly safe," she says. "That's the message we're trying to get out."

The group reached out to its member banks as early as April when it sent a communications toolkit, which included background information and press releases, to concerned customers and employees.

Despite the efforts by the government and associations, analysts continue to speculate about which bank will fall next.

A WaMu spokesman recently fired back against rumors, telling CNN Money and other publications that the institution had increased its liquidity. The bank could not be reached for comment, but its stock was up at press time.

"It's a very conservative business," Frankel says. "The irony is that's why people trust the banks - because they're conservative."

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