LONDON, July 24 (Reuters) - Banks in Britain may need to hold more cash as the rapid spread of news via social media could make them more vulnerable to runs during system outages, technical glitches and other shocks, a senior Bank of England official said on Wednesday.
Banks have to maintain a “liquidity” buffer of cash or bonds that can be quickly sold to raise funds to cope with short-term shocks.
Lyndon Nelson, deputy chief executive of the BoE’s Prudential Regulation Authority, said the power of social media has raised questions about how “sticky” deposits were in practice.
Experiences have shown how news about lenders on social media can worry customers enough to make them pull money out of their accounts, he said.
“Are (banks) going to be much more liable to runs than we have traditionally assumed they might be?” Nelson told parliament’s Treasury Select Committee. “We may have to recalibrate liquidity.”
Operational resilience, or the ability of banks to recover from cyber attacks or IT glitches like the one faced recently by Sabadell subsidiary TSB bank, has risen up the regulatory agenda, he said.
Thousands of TSB customers were locked out of their accounts, with many hit by fraud, after a botched migration of its computer systems.
The BoE is still investigating the incident.
Shares in Metro Bank fell in May after what it called “false rumours” on social media that led to customer queues at some London branches.
Nelson said the Bank will publish a discussion paper in October with proposals for public consultation on how quickly banks must recover from outages.
The Bank’s Financial Policy Committee is conducting a “stress test” to see what the maximum time for recovery from outages should be, he said.
“A one-size fits-all may be challenging,” added Alison Barker, director of specialist supervision at the Financial Conduct Authority.
Nelson said a major issue is when a bank’s customer data is corrupted, making fast recovery difficult.
The BoE is looking at the merits of a U.S. style “super shield” or Sheltered Harbor whereby banks provide copies of customer account data to a centrally maintained vault.
Glitches are often due to “legacy” systems with coding from the 1970s, which may not be able to recover from outages within the time regulators will set, Nelson said.
Competitive pressure from agile fintech companies that can update Apps several times a week means that big banks will have to upgrade systems, he added. (Reporting by Huw Jones; Editing by Kirsten Donovan)