Over the past few days, something strange happened to me: My debit card simply stopped working. This caused a sticky situation when I was traveling, and I was lucky that my cabbie took $27 plus a 20 euro note for a $37 cab fare.
My problem turned out to be a widespread problem with my bank’s computer system. This is a bank with a large internet presence and no physical branches in my state, so many customers really were stuck with a cash-free few days (which is less fun than being cash-flush, I assure you.)
So what will I do when the computer problems are solved? I plan on withdrawing $500 so that I’m not caught short if these problems recur next week. More generally, if account-holders fear that computer glitches tend to repeat themselves (computer failure is autocorrelated), then we will all be lining up (electronically) to make withdrawals. Some may even be so dismayed by recent events as to close their accounts.
Why haven’t I named the Bank? Because if enough people are aware of this situation, then these correlated withdrawals become a Bank Run. The possibility of online withdrawals certainly sped up the the recent run on the UK-based Northern Rock bank, and website problems raised anxiety. But my (new) fear is entirely a computer-glitch precipitated bank run.
I must admit, I’m not aware of any bank runs – to date – caused by computer problems. But here’s a forecast: IT problems will cause a bank run within a decade. Fortunately these sorts of runs are unlikely to cause widespread financial instability. My advice? If you work in IT at a bank: Demand a raise – your bank’s future depends on you.
The cabbie was the lucky one. Your luck was having a 20 euro note rather than a 20 pound note.
…it’s, what…less than a 1% chance that it’s my bank?
why bother worrying about it.
Another option is to have accounts at a couple different banks, with at least *some* money in each. Then, you’ve got a backup plan.
I always take out cash from my bank’s ATM network before a major holiday; while their actual network hasn’t ever crashed in totality, it has gone down at least locally or regionally from time to time, and having the bucks in my wallet has saved my bacon more than once.
Get the government on it. Market failure ;P
This seems like a bit of an overreaction. If you are really that concerned you should just keep accounts with two different banks. If one has an IT crash just withdraw from the other one. And a bank run shouldn’t make you worry unless you have over the federally insured 100K limit in the bank.
I’d rather take that $500 and earn interest on it rather than have it sit around my house in the case of a possible IT problem/bank run.
Hmm, if IT failure means that one cannot withdraw deposits, how can an IT failure cause a bank run (sudden and universal withdrawal of deposits)?
doctors, lawyers, and MBA
they’re not as good looking as MBAs and they don’t have license regimes which impose a cap on the supply of labor like doctors and lawyers (the rate limiting being admission to med school and passing the bar in those two cases).
It is indeed USAA. I’m not worried about a run, they are extremely well captialized.
The lack of branches of USAA FSB exacerbates the problem in this situation, but I agree they should give raises to the IT staff!
Uh, you have only one bank? and no additional cards on which you can get a cash advance?
You have to play the odds a bit here and have multiple ways to get cash. If the ATM card won’t work, maybe the Visa card, Discover, AMEX, etc. will. Sure, you will have higher fees, but that’s probably cheaper (and safer!) than carrying $500 around all the time.
The odds of ALL these systems being down are very low, despite the obvious intercorrelation.
I still take Jo’s point, not peter’s. A bank run is caused by people wanting to get their cash *before everyone else*.
An IT error will prevent everyone who has any money from getting access, so you certainly can’t have a “run” after the problem becomes clear.
As for the fear of an IT crash, why will that be a problem? Even if Tyler alerts everyone in the country to the problem, and they all believe him, banks will be able to satisfy the temporary blip in cash demand. Meanwhile, it’s likely simply to be a timing issue–many of them will then not take out extra cash for a few days.
So, at worst what we’re left with is a few days with ATMs that don’t have cash in them–that’s frustating, but not the makings of a banking crisis.
…disk failure isn’t the problem, I’d bet. with a raid-5, and a raid-5 backup, there’s “no” possibility of losing data.
What would you have done if your wallet had been stolen?
My husband and I use USAA. We didn’t experience any problems, but saw the note on the web site.
Having lived where there are earthquakes, I know that ATMs don’t work when the power fails. I know too that ATMs don’t work reliably in hurricanes or tornados or terrorist attacks, so we maintain a few hundred in cash in our house, in small bills (not all $20s). I also don’t rely on one bank anyway. We belong to USAA and a physical credit union. I also know how to received a cash advance from my credit card, and when I didn’t, I was still able to solve that problem in under an hour with a phone call and then by going to a physical bank.
Solution: carry cash. Have various means of getting it.
IT professionals aren’t paid more because 1) their skills aren’t rare, and 2) IT departments are cost centers. There’s little reason for most companies not to simply farm all of that out to various (and redundant) 3rd parties. How can big failures happen? Because no one understands the interplay of the various systems. Will this happen more and more? Uh, I’d doubt it. Industry wide, more redundancy and more data farming are likely after a small failure like this.
Tim is right. At the major financial institutions, IT professionals are paid very well indeed. As much as a good lawyer. (Though not nearly as much as an investment banker. We have to be reasonable here…) That said, I always got the impression that the vast majority of intellectual IT resources at these firms were put into risk modeling, rather than the mundane stuff like keeping the ATM connections running. (You know, things like calculating trillions of different possible likely variations of the firm’s hundreds of thousands of different positions. Each night.)
I work in IT at a major bank (market cap over 120bil). From my point view, the IT element that would cause a glitch that would cause a “bank run” would not be the hardware. We have, or can have, redundancy on almost all level of hardware to the point of fault tolerant: disks (SAN), servers, switches, NICs, etc, etc. We can even have redundant datacenter on different coast. What can cause a major glitch that would not be easily resolvable would be software — applications, OS, drivers, microcodes, etc, etc. We still haven’t really solve the problem of writing bulletproof software.
An even more likely cause of a run on a bank: a significant fraud event gets revealed to the public, triggering a panic. The scenario would look something like this: fraudsters discover a significant security defect, steal a few million dollars in an extremely short period (perhaps from a few thousand accounts in a couple of hours), the press picks it up, etc. Interestingly, all of the individual components of such a string of events have happened in the last 2-3 years multiple times at very large banks.
I am multisided on this issue. First of all, I would like to say that I do work at a bank so the experience with computer problems is always a risk. I feel that people should keep at least a little cash on them at all times, anyway. I recently heard someone mention that there is talk of terrorists organizing a scam to shut our whole livelihood down. What I mean is that it is possible that they gain entry into the computer systems of the U.S. and do significant damage; primarily no electricity. Whether or not this talk is unfounded is not the issue, though. For this reason, the risk of computer glitches, I feel that even the most superior investors should still keep a little cash squirreled away.
On the contrary, though, I do feel that the risk of computer failures will continue to decrease well into the future. Improving technology over the years has proven this, and will continue to be an indication of this opinion. Advancements in technology will keep computer problems at bay. If computers do fail, the resulting issues will be less hazardous because of improvements that are made every day. In essence of this, I would like to say that computers are going to increasingly maintain a presence in our everyday lives. Eventually, I feel that almost every aspect of our lives will be handled by computer systems. In light of that, I feel that computers are unavoidable. It will be necessary to accept their shortcomings (as we must do with almost everything else) and hope that technological advancements will keep their problems at a minimum.
Lastly, the comment that a bank run is unlikely to cause widespread financial instability is somewhat misleading. Widespread being a community, a nation, the world? A bank run could cause significant financial instability of a community. For those especially small communities, with mayble only one or two local community banks, a bank run is of great risk. Loans provided by banks would cease and business development would not occur. This would significantly affect the economic stability of the community. These small banks would go bust. On the otherhand, nationwide, a bank run might not have such a large impact. Large, moneycenter banks would be able to provide needed funds. Furthermore, with the existence of the Federal Deposit Insurance Corporation, at least the depositors of small banks know their funds are insured (at least up to $100,000). Also, nationwide, a bank run would have little impact because of the financial abiltiy of banks to borrow needed funds from other banks.
If nobody trusts the banks then the economy will be in a bad state of affairs. There needs to be trust between the banks and the customers so that people will not run and get all of their money out of the bank. The blog mentioned a computer glitch causing a lot of problems for that individual. Cimputer glitches are a way of life in the age that we live in. Everything is run by a computer or has a step in its processes where a computer is involved and banking is no exception. People do need to trust the banks and the government in general.
Computer glitches happen all the time in large corporate networks but we often don’t have to suffer because of them. The large corporations use cloud computing security systems that allow many other computers to carry the weight for the one that failed.
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