Silent Bank Run

What Is a Silent Bank Run?

A silent bank run is when depositors pull out funds in large volumes without physically entering the bank. Silent bank runs are like normal bank runs, aside from funds are removed by means of electronic fund transfers, wire transfers, and different methods that don't need physical withdrawals of cash.

Understanding Silent Bank Runs

Silent bank runs are the modern equivalent of a traditional bank run. While depositors beforehand would have to visit a bank in person to pull out cash, today they can pull out money utilizing different electronic means, like online banking platforms.

In numerous ways, these new innovations make the prospect of a bank run even more compromising according to the viewpoint of a bank. Numerous traditional barriers that would have eased back the pace of a bank run —, for example, customers expecting to stand by in long lines to pull out funds — are presently not applicable. Essentially, customers today don't have to stand by to place orders inside a bank's working hours. They can issue an order online and that order will be handled once the bank opens.

Then again, these modern comforts could likewise benefit banks by making the occurrence of a bank run less noticeable to outside onlookers. A depositor may be bound to pull out their funds on the off chance that they see different depositors arranging outside a bank wishing to do as such. With electronic withdrawal demands, the side effects of a bank run might be less effectively seen.

Real World Example of a Silent Bank Run

During the 2007-08 Financial Crisis, numerous financial institutions confronted silent bank runs, as depositors feared losing their money if banks somehow managed to collapse. Across United States and Europe — especially in the U.K. furthermore, Iceland — silent runs depleted bank reserves, which extended the crisis and force several large institutions extremely close to collapse.

One prominent silent bank run impacted Wachovia in 2008. Depositors pulled out $15 billion more than a fourteen day period after Wachovia reported negative earnings brings about April 2008. A second wave of withdrawals happened in September 2008. The disappointment of Lehman Brothers set off a $8.3 billion run, trailed by a $10 billion run after Washington Mutual failed. This combined $18.3 billion addressed 4.4% of Wachovia's depositor base.

A significant part of the withdrawals were concentrated among commercial accounts with balances over the $100,000 limit insured by the Federal Deposit Insurance Corporation (FDIC). However Wachovia had other liquidity issues prior to September 2008, the run on deposits exacerbated its misfortunes and contributed to the FDIC empowering its sale to Wells Fargo (WFC).

The Great Recession likewise witnessed bank runs in nations like Ireland, the U.K., and Iceland. Northern Rock, the primary British bank to experience a run of any sort since Victorian times, experienced both a silent and a traditional bank run in September 2007. The run began after media reported Northern Rock had gone to the Bank of England for help, and accelerated as customers realized deposits above \u00a32,000 were not completely insured. Depositors pulled out funds through the internet, telephone and mail — as well as framing lines outside bank offices.

Features

• A silent bank run is like a traditional bank run aside from it includes non-physical means of pulling out funds.
• The 2008 financial crisis saw several instances of silent bank runs happening all through the world.
• Instances of such means incorporate wire transfers, electronic fund transfers, or demands placed through telephone or online banking platforms.