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What An Online Bank Run Looks Like
from the 404-page-not-found dept
In the bad old days (or in countries with questionable financial situations) when there were concerns a bank might run out of money, there would be an old-fashioned "bank run," with tons of customers all trying to withdraw their money at once. That could cause all sorts of problems, since most banks work on the theory that such runs won't happen. Thanks to the FDIC, you don't see bank runs in the US these days, but apparently that's not the case in the UK, where concerns over the financial status of the bank Northern Rock led to what certainly looks like an old-fashioned bank run. However, in this modern age, not everyone is lining up on the street to get into their nearest Northern Rock branch. Apparently, the bank's website has experienced the equivalent of a bank run on its servers -- meaning that they've been pretty much unable to handle the traffic, frustrating a number of online account holders who say the terms of service say the only way they can retrieve money is via the online interface. Of course, the fact that many of those account holders can't even reach the site is leading to increased panic among those who fear that the site is down permanently. Apparently, even if the interface is different, an online bank run pretty much mimics the offline one.
Reader Comments
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What?
Apparently, even if the interface is different, an online bank run pretty much mimics the offline one.
What? You mean it is not easier, faster, and a more efficient way to ruin a bank? There goes my idea for world domination. :)
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So
Let's make it a worldwide DDOS!
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Error message
Reminds me of the joke about the error message presented to pension managers from the Enron website:
"401K money not found"
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Re:
(LOL)
Now (b)that's(/b) funny.
(/LOL)
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FDIC prevents bank runs?
"Thanks to the FDIC, you don't see bank runs in the US these days..."
What are you talking about? Countrywide just experienced a bank run. The FDIC can't do anything to prevent that. As long as you have fractional-reserve banking, you will have banks runs at some point.
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FDIC can't stop anything
"Thanks to the FDIC, you don't see bank runs in the US these days"
With repsect, the FDIC will NOT stop bank runs and they CAN"T keep a bank from failing. Chris Brunner in an above post is correct.
The issue with most banking systems, ours included, is a practice called fractional reserve banking. This practice along with the Federal Reserve tampering with inerest rates and the money supply are the cause of the problems.
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FDIC
The point of the FDIC, the Federal Deposit Insurance Corporation, is to pay depositors back in the event of a bank failure. Since your deposit is insured, there's no need to panic to do a withdrawal before they run out of cash, hence a bank run is unlikely.
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Re: FDIC
You are incorrect.
The FDIC only insures individual deposit accounts up to $100,000 dollars. If you have more or have money in money markets or safe deposit boxes, they are not insured. The average individual may be protected, but there's a cascading effect. What about the companies those people work for? There are many large companies that have over $100,000 in deposit.
IRA's are covered up to $200,000. However, I know several people that have more than $250,000 in IRA accounts. If there is a bank run and that bank goes under, they are not protected.
Banks can and do fail and bank runs can and do happen, FDIC makes no difference when the system itself is flawed. Consider the S & L crisis of the 1980's. The FSLIC (FDIC for S & L's) became insolvent under the pressure. Those banking failures cost the US taxpayer over $100 billion. It's important to remember that any bank, no matter how big, can go down.
Countrywide just experienced a bank run, and they are having major problems. I question their financial solvency. Recently, they just acquired a $12 billion line of credit from a group of banks. They are also now subject to a class action lawsuit filed by some of their employees over employee 401k plans. The future does not look bright for them, in my opinion.
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The most annoying thing is that the run is entirely without substance. It's just empty panic. All that happened was that the Northern Rock opened an agreement with the Bank of England. They never even *exercised* that agreement. End result, mob mentality as everyone DoSes the branches and the website.
Also what irks me is the lack of viable communication from the bank - it's obvious that whatever error/warning messages their website had were ineffective, giving impression of blocks on removing savings rather than mere excess traffic.
It's just sentences tossed-out into the aether by those who should know better versus the unthinking masses.
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