With the ongoing failures and shotgun weddings on Wall Street, already nervous banking customers and investors are nearing panic mode. According to Christopher Whalen, managing director of the research firm Institutional Risk Analytics, for the first time in generations individual customers are nervous about the financial health of their banks.

"If we don't get ahead of this, we are going to face a run on the retail banks by election day," Whalen warns.

Given such dire straits, now is the worst possible time for banks to batten down the hatches on their external communications. Pulling back on communications during a critical period like this will foster negative rumors and innuendo, prompting customers and investors to look elsewhere for safer deposit options and alternative havens for investment capital.

The key word for banks in this climate is transparency. Banking executives need to do everything in their power to reassure customers that their bank is in no danger of collapse and that customers’ deposits are completely safe. In this environment, there is no such thing as too much communication.

Take a cue from what the large money market funds are doing: they are taking unprecedented measures to disclose information on their fund’s holdings on a daily basis to investors. They are reassuring investors that they have no exposure to Lehman Brothers debt, just like community banks should be reassuring investors that they have no exposure to subprime loans.

In this volatile market, banking executives must demonstrate 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. That begins with transparency.

Given the media’s focus on bad news, banks need to tell their own story, on their own terms, reassuring stakeholders of their long-term safety and soundness. They need to educate depositors about FDIC insurance, provide an honest appraisal of their short- and long-term prospects, and generally go above and beyond in keeping their constituents informed.

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/Alt-A loan mess and no Wall Street holdings, 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 and has sufficient liquidity, with access to additional capital if needed.

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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