Silent Bank Run Defined

What Is a Silent Bank Run?

A silent bank run is when depositors withdraw funds in large volumes without physically entering the bank. Silent bank runs are similar to normal bank runs, except funds are withdrawn via electronic fund transfers, wire transfers, and other methods that do not require physical withdrawals of cash.

Understanding Silent Bank Runs

Silent bank runs are the modern equivalent of a traditional bank run. Whereas depositors previously would need to visit a bank in person to withdraw cash, today they can withdraw money using various electronic means, such as online banking platforms.

In many ways, these new technologies make the prospect of a bank run even more threatening from the perspective of a bank. Many traditional barriers that would have helped slow the pace of a bank run — such as customers needing to wait in long queues to withdraw funds — are no longer applicable. Similarly, customers today do not need to wait to place orders within a bank's working hours. They can issue an order online and that order will be processed once the bank opens. 

On the other hand, these modern conveniences might also benefit banks by making the occurrence of a bank run less visible to outside observers. A depositor might be more likely to withdraw their funds if they see other depositors lining up outside a bank wishing to do so. With electronic withdrawal requests, the symptoms of a bank run may be less easily seen.

Real World Example of a Silent Bank Run

During the 2007-08 Financial Crisis, many financial institutions faced silent bank runs, as depositors feared losing their money if banks were to collapse. Across United States and Europe — particularly in the U.K. and Iceland — silent runs drained bank 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 2008. Depositors withdrew $15 billion over a two-week period after Wachovia reported negative earnings results in April 2008. A second wave of withdrawals occurred in September 2008. The failure of Lehman Brothers triggered an $8.3 billion run, followed by a $10 billion run after Washington Mutual failed. This combined $18.3 billion represented 4.4% of Wachovia's depositor base.

Much of the withdrawals were concentrated among commercial accounts with balances above the $100,000 limit insured by the Federal Deposit Insurance Corporation (FDIC). Though Wachovia had other liquidity problems prior to September 2008, the run on deposits exacerbated its woes and contributed to the FDIC encouraging its sale to Wells Fargo (WFC).

The Great Recession also saw bank runs happen in nations such as Ireland, the U.K., and Iceland. Northern Rock, the first British bank to experience a run of any kind since Victorian times, experienced both a silent and a traditional bank run in September 2007. The run started after media reported Northern Rock had gone to the Bank of England for help, and accelerated as customers realized deposits above £2,000 were not fully insured. Depositors withdrew funds through the internet, telephone and mail — in addition to forming queues outside bank branches.