Silent Bank Run

A silent bank run is a situation in which a bank's depositors withdraw funds en masse without physically entering the bank. A silent bank run is much like a normal bank run, except withdrawals are made by customers in the form of electronic fund transfers and wire transfers, rather than going into the bank and withdrawing cash or a bank draft. As banking has become more and more automated, the electronic movement of funds from one institution to another has become more common.

During the 2008 financial crisis, many financial institutions faced silent bank runs, as depositors feared losing their money if banks were to collapse. Across America and Europe, particularly in the U.K. and Iceland, silent bank runs drained banks of their reserves, which served to deepen the crisis and force several large institutions to the brink of collapse.

One notable silent bank run affected Wachovia in late 2008. It was triggered by the failure of Washington Mutual the day before, and a 27 percent drop in Wachovia’s stock price. On a Friday, individual and business customers with accounts worth more than $100,000 began withdrawing money in order to bring their account balances below the $100,000 FDIC-insured limit. The bank lost about $5 billion to silent run withdrawals over the course of that weekend, which was 1 percent of its total holdings and enough that the Wachovia would not have had the liquidity it would have needed to open its doors the following Monday. The FDIC stepped in, encouraging the sale of Wachovia to Wells Fargo.

The Great Recession also saw bank runs happen in nations such as Ireland, the U.K., and Iceland, where depositors’ funds were not insured. The governments of Ireland and Denmark addressed silent bank runs in those countries by instituting guarantees on deposit accounts. Banks in the U.K. saw traditional bank runs happening concurrently with silent runs, where some customers withdrew their funds from bank branches in person, and others withdrew their funds via online banking platforms or telephone banking. British bank Northern Rock, the first British bank to experience a bank run of any kind in more than 140 years, experienced both a silent and a traditional bank run, losing more than 14 billion pounds ($25 million) to withdrawals in September 2007, two-thirds of which were taken out by customers performing a silent run.