Can computer failure cause a bank run?

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.