Bank Savers Run at the Click of a Mouse

The online run may spare banks the damage of customers flooding branches to pull out cash: but funds can be moved even quicker and in far larger quantities with the click of a mouse or a telephone call.

This is one of the concerns behind recent scrambles by governments in Europe to increase depositor sums under guarantee. Ireland and Denmark have offered blanket guarantees to savers, and pressure is mounting on others to follow.

Ironically, it was another Dutch bank, ING, that pioneered the growth of online banking by launching ING Direct over a decade ago: amassing 192 billion euros in savings and current account deposits, it is now the world’s 12th largest.

ING Direct operates without physical branches; customers open and manage their accounts via the phone or Web. It is not active in its home markets because of its existing retail network, and has instead built a business network in North America, Europe and Australia.

Banks have always lent more than their clients hold on deposit, leaving the risk that none would have enough cash to pay out if they all turned up at once. Back in the 1930s, depositors faced losing all their money if a bank collapsed.

Attilio Vianello, now 98, remembers how in the 1930s he had just started a job at Credito Veneto, a small bank based in Padoa, Italy, as the crisis spread beyond Wall Street to Europe.

“Banks were going bust from one day to another and the vast majority of people did not manage to rescue their savings because once they knew, it was too late. They would find the doors already shut,” he recalled.

The electronic equivalent of this would be a server failure, or a Web site shutdown. But executives point out that in any silent run—made possible by electronic money transfer whether through the internet or wholesale networks—the most damaging aspect is the speed at which business customers can move.

“The so-called silent run on the bank—it’s real,” Carlos Evans, Wachovia’s wholesale banking executive, was quoted as saying in the Kansas City Star newspaper. He said withdrawals started picking up on September 26 and over subsequent days.

“You go from being weakened to in trouble in a matter of days. I don’t think people understand how quickly events unfolded,” he said.

Confidence can return, but often only after dramatic state intervention. Now state-owned, Northern Rock recently had to close to new savers after attracting about 6 billion pounds this year from customers drawn by government guarantees.

(Reporting by Reed Stevenson and Steve Slater. Additional reporting by Lisa Jucca in Zurich. Editing by Sara Ledwith.)