Social media conflicts during the financial crisis: Managerial implications for retail banks

• Author: Xiaoming Lu,Denitsa Dineva,Jan Breitsohl
• Date: 01 September 2019
• Published date: 01 September 2019
• DOI: http://doi.org/10.1002/jsc.2292

RESEARCH ARTICLE

Social media conflicts during the financial crisis: Managerial

implications for retail banks

Denitsa Dineva

1

| Xiaoming Lu

1

| Jan Breitsohl

2

1

The Business School, Edinburgh Napier

University, Edinburgh, United Kingdom

2

Kent Business School, University of Kent,

Canterbury, England, United Kingdom

Correspondence

Denitsa Dineva, The Business School,

Edinburgh Napier University, 219 Colinton

Road, EH14 1DJ, Edinburgh, Scotland, United

Kingdom.

Email: d.dineva@napier.ac.uk

Abstract

Social media can be used proactively to disseminate accurate corporate information

and address undesirable consumer behaviors online in order to help counteract nega-

tivity in the business environment in the wake of a financial crisis. Social media thus

has become a popular open forum for financial institutions such as retail banks to

engage in corporate dialogue with consumers. We recommend that financial services

firms preemptively use their social media-based online communities in order to dis-

seminate accurate corporate information in times of a financial crisis. Particularly,

firms can choose between a range of reactive and proactive strategies to manage

social conflict in the wake of a financial crisis.

1|INTRODUCTION

The anniversary date for the financial crisis is generally regarded as

August 9, 2007—the events of which made the front page of Financial

Times. The closure of a French bank BNP Paribas sparked a sharp

escalation in the cost of credit for all banks, created a panic in financial

markets, and directly led to all the other tumultuous events such as

the run on Northern Rock (Constantinou & Ashta, 2011). All the eco-

nomic jargon and complex financial analyses (e.g., credit default

swaps, sub-prime mortgages, asset-backed securities, and derivatives)

may seem abstract, but the picture of queues of customers lining up

outside Northern Rock branches is a reminder that the bank's failure

was ultimately about people. As the day wore on, panic spread, and

the run continued until the government stepped in to guarantee all

Northern Rock deposits. It was U.K.'s first retail bank run since the

nineteenth century and one of the first symptoms of the global finan-

cial crisis (Shin, 2009). In fact, the entire financial crisis and ensuing

recession came at an incalculable human cost, the consequences of

which are still prevalent today. The majority of consumers are still

worse off now than before the crisis due to massive growth in private

debt (Reinhart & Rogoff, 2011).

Ten years after Northern Rock—is the U.K. more or less likely to

see another bank run? It is an appropriate time to reflect on these

events, but also to look forwardand assess how things have moved on

in the last decade, and whether something similar could ever happen

again (Harris & Coles, 2004). Liquidity issues at NorthernRock are not

the central focus of this article. We acknowledge that public knowl-

edge of the bank's existing liquidity shortage (initially arising from

wholesale funding issues)always acts as the trigger for a retail run. This

article considers a key technological change over the last 10 years—

the emergence of social media—that may influence the diffusion

of (negative) information in a future financial crisis (Gauthier,

Bastianutti, & Haggège, 2018; Loonam, Kumar, Mitra, & Abd

Razak, 2018).

Indeed, research into the financial crisis suggested that financial

markets are more likely to be influenced by negative press and

consumer-generated public scandals rather than facts and fundamen-

tals (Stich, Golla, & Nanopoulos, 2014). For instance, information on

the likes on Twitter, Facebook, or Google Blogs posts has the power

to influence the financial market (Althaus, 2002). This was the case in

2013 when a “viral”fake tweet from a hacked Associated Press

account asserted that explosions at the White House had injured

Barack Obama and as a result wiped more than $130bn off the value

of the American Stock Market Index (for instance, S&P 500). There-

fore, it is conceivable to put forward that during a financial crisis con-

sumers will turn to social media to voice their diverse opinions,

criticism, and distrust of the economy. If unmanaged, these may lead

to large quantities of negative, often highly publicly discussed

JEL classification code: M31.

DOI: 10.1002/jsc.2292

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