by Robert Grove
No longer does a run on the bank look like a scene from “It’s A Wonderful Life.” There are no hordes of people lining up for withdrawals or a George Bailey bank exec trying to calm the hysteria. Today, the panic runs unchecked as people in the quiet of their homes and offices assault the bank vault via servers and the web. And the dangers are just now being realized.
I was in London last September and witnessed first hand this new phenomenon. Things became so dire that consumers accused one bank of maneuvering under cover of night to turn off server access and stopping online transactions in an attempt to stem the outflow of cash. It didn’t help and Northern Rock bank needed government assistance to continue.
Now it’s our turn. US banks are experiencing the same troubles with similar results. Washington Mutual saw over $16 Billion in cash withdrawn, severely hurting their liquidity, just before the Fed moved in. Wachovia, the centerpiece in a takeover battle between CitiGroup and Wells Fargo, finds itself in a similar situation.
In the brave new world of Internet banking, is there a need for safeguards to shield financial institutions from panic and provide stability in the face of the “Mentos Economy” mentality?