We all know the story of the current banking environment: The housing market is in the tank, subprime loans are being written off by the billions, loan defaults are rising, credit is tight – all of which has left banks with shrinking income, narrowing margins and deteriorating credit quality.

Given such dire straits, it’s easy to understand the temptation for banks to batten down the hatches on their external communications and lay low until the storm passes. If there is no good news to tell, why say anything?

Here’s why: Pulling back on communications during a critical period like this could generate or reinforce negative perceptions, prompting customers and investors to think there is another shoe about to drop. In response, they look elsewhere for financial assistance and alternative havens for investment capital.

In some ways, now has never been a more important time for banks to talk to their key constituencies. Doing so demonstrates that management isn’t just riding out the storm below decks, but that it has the experience and confidence to navigate through the current rough seas.

Proactively communicating is the key. If investors and customers believe that they are well-informed about all of your troubles, that you have experience managing through tough times like these, that you have a solid, prudent plan for dealing with the current market and that you are diligently executing that plan, they are most likely going to stick with your bank despite the tough market conditions.

Remember, it’s difficult out there for everyone. Investors and customers are riding out the storm as well, and they are looking for banks that they believe have the best chance of coming out successfully on the other side of this down cycle. Clamming up will do nothing to inspire that confidence.

So, what to say when there isn’t any good news?  Plenty, actually.

Experienced bankers can point to previous difficult market cycles, emphasizing the fact that you have guided your bank through tough times before, just as you are confident that you have the experience and skills necessary to survive the current market downturn.

Also (if true), emphasize the fact that your institution has zero exposure to the subprime loan mess, nor was your bank involved in any large loan participations that have exposed some others to additional risk. Another hot-button issue is capitalization – make sure to emphasize the fact that your bank is adequately funded.

Perhaps the most pressing communications issue for most banks right now is one of perception. No matter the size of your bank, the entire industry is being painted by a very broad brush based on negative news from Citibank, Netbank, Bear Stearns and others. A great deal of fear and anxiety among customers and retail investors arises from Bear Stearns-type news.

Make sure that you contrast your institution’s positives with these banks’ negatives to ensure that you don’t become tainted by association. You know that the root causes of the Bear Stearns situation – and the billions in mortgage-related write-downs at other banking behemoths – have nothing whatsoever to do with your institution. But don’t assume your constituents know it. It’s up to you to tell them.

Be realistic. Be transparent. Acknowledge difficulties in a forthright manner. A calm, confident voice in a sea of chaos can have a jarring effect – in a good way. Be that voice, even if you are speaking about rising nonperforming assets, by clearly articulating their causes and putting the news in the context of your peer-group performance.

Also speak to the long-term. Give your constituents a broader perspective of up and down cycles in the market. It is imperative that you actively define your institution’s status in this environment.

Again, you are not alone in this. Other banks are going through the same thing. Remaining silent will certainly not engender confidence on the part of your shareholders and customers. But communicating in a forthright manner just might.

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