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What To Say About A Bank On The Brink

By Andy Alexander

The natural instinct of a newspaper is to tell what it knows. But what if a newspaper learned that a bank was on the brink of failure?

The bank’s depositors surely would want to know. But disclosure might cause panicked withdrawals, which would almost certainly cause the bank to collapse.

The Post recently faced this dilemma when the Office of Thrift Supervision (OTS) mistakenly disclosed in an e-mailed announcement to reporters that the agency had considered closing a “small Pennsylvania bank.”

The Post felt that the accidental disclosure by OTS was, by itself, news. So it wrote about the mistake, but without naming the bank.

But from the perspective of OTS, even a vague reference to a “small Pennsylvania bank” could cause problems because there are a limited number of institutions in that category and it might still be identifiable. It urged The Post not to publish anything.

I agree the mistake was newsworthy, but I think the story could have been written by deleting the reference to Pennsylvania.

Barbara L. Shycoff, managing director of external affairs for OTS, said today that there had been discussions about the error with representatives of other media organizations, and they chose not to write about it. She noted that The Post was the only news organization to write a story and allude to the Pennsylvania bank.

She declined to say whether The Post story had damaged the unnamed bank, noting that OTS does not comment on such matters.

Here’s how it unfolded: The e-mail sent to reporters on July 31 announced the closing of Peoples Community, an Ohio bank located in West Chester, near Cincinnati. But the e-mail said the bank in Pennsylvania – it was crossed out with red lines –also had been closed. Within minutes, OTS issued a retraction on the Pennsylvania bank. But it was clear that it had been considered for closure.

Post banking reporter Binyamin Appelbaum consulted with his editors, and they decided to write the story, but without naming the Pennsylvania bank. The story, which appeared the following day, began: “The Office of Thrift Supervision accidentally disclosed Friday night that it considered closing a small Pennsylvania bank -- a rare breach of the rigorous silence that banking regulators maintain about the health of individual companies.”

A few paragraphs later, after explaining the e-mail, Appelbaum wrote: “The Washington Post is not naming the second bank so as not to exacerbate potential harm caused by the e-mail. News that a bank might fail can become a self-fulfilling prophecy. Depositors sometimes start withdrawing money despite the federal guarantee protecting most accounts, and customers may begin to take their business to other banks.”

In an e-mail, Appelbaum told me that the “decision not to name the bank was made with my editors after careful thought. We were concerned that identifying the bank as verging on failure could cause its failure.”

Appelbaum said OTS asserted “it was probable that the information would not become public unless it was published by the Washington Post.”

“We still felt that the mistake by OTS was itself newsworthy, so I wrote the story without identifying the bank,” he wrote.

If you were making the decision at The Post, what would you have done?

By Andy Alexander  | August 12, 2009; 3:10 PM ET
 
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Comments

Undertake it. ECB, take no chances. The tables keep turning and more banks are going to fail. Pretending all is well does not mean it will end well. I know how to hold up a bank. It needs to be worth holding up. Let me know. I can hold a bank up for you, if you keep me out of the newspaper. The idea of not having information and holding up a bank is risky. That's what I'd do. You do what you want.

Posted by: Dermitt | August 13, 2009 1:42 PM | Report abuse

Life is a beach. A beach is a better place to crash than a bank.
http://twitpic.com/photos/crashtestreport
The old days. Julia recalls, "Monkeys would fly into the train compartments, causing a ruckus." Watch out for flying monkeys. I like flying money. Bigger bank hold ups require a faster getaway ride. Trains have uses. I'm just saying, You know. I need to find Bonnie.

With Love,
C.D.

Posted by: Dermitt | August 14, 2009 8:56 AM | Report abuse

I knocked off a bank last week and this week I updated her. http://twitpic.com/photos/crashtestreport

Have fun 66 style or the other too. I know, I'm bad. Day turns into night as I learned from a three year old. One smart kid he is! He wants to be a bad boy and he will. He'll be a good man tho.

Posted by: Dermitt | August 18, 2009 11:37 AM | Report abuse

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