Reputation Risk May Cut Both Ways

October 30, 2008

Authored by: Robert Klingler

In a CEO alert published by the ABA on October 29, 2008, the ABA specifically addresses the possible reputation risk of participating, and the steps ABA is taking to address that risk.  For the ABA analysis, see the full ABA CEO Alert.

What Will My Customers Think? If a bank receives a capital investment from Treasury, will its customers call it a bailout?  This is an enormous concern that we’ve raised with Secretary Paulson.  Perception is still reality, and in the eyes of many customers and the media, it’s a bailout, no matter how many times Treasury says that the capital is for healthy institutions.  Most banks have never made a single subprime loan. They’ve watched Wall Street boom and bust and receive handouts.  Many banks will not participate in the CPP if it continues to be perceived by their customers as a bailout for troubled institutions.  Yet it’s also possible that if a banker doesn’t participate and competitors do, customers or the media might think they were turned down.

This is a voluntary program, and there are good business reasons why a bank may choose to participate.  This is a message we’ll be hammering in the media, just as we are pressing Treasury and the regulators to do.