What is a '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.

BREAKING DOWN 'Silent Bank Run'

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.

  1. Silent Partner

    An individual whose involvement in a partnership is limited to ...
  2. Bank Run

    A bank run occurs when a large number of customers withdraw their ...
  3. FDIC Insured Account

    An FDIC Insured Account is a bank account that meets the requirements ...
  4. Commercial Bank

    A commercial bank is a type of financial institution that accepts ...
  5. Universal Banking

    Universal banking is a system in which banks provide a wide variety ...
  6. National Bank

    In the United States a national bank is a commercial bank, while ...
Related Articles
  1. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers. Check out more on the differences between ...
  2. Insights

    The World's Top 10 Banks

    Learn more about the world's largest banks and how more financial power shifts eastward as China is home to four of the world's largest banks.
  3. Tech

    The Pros And Cons Of Internet Banks

    Learn how internet banking services stack up against their brick-and-mortar peers. Find out what internet banks have to offer and where they fall short.
  4. Financial Advisor

    Diversify with These Four Alternative Assets

    In times of market volatility, investors add alternative assets to their portfolios--highly illiquid, but profitable investments like art, land or precious metals.
  5. Personal Finance

    What is Fractional Reserve Banking?

    Fractional reserve banking is the banking system most countries use today.
  6. Tech

    The Future Of Mobile Banking (JPM, BAC)

    Typically slow to react to technological change, retail banks are finally recognizing the benefits it provides to consumers as well as the cost savings it gives the firm.
  7. Personal Finance

    10 Bank Promotions That Pay You to Open an Account

    Find out which banks are running cash promotions and will pay you just for opening a new account.
  1. What is the difference between a silent partner and a general partner?

    Understand the difference between a person designated as a silent partner and a general partner under the partnership business ... Read Answer >>
  2. Why is the capital adequacy ratio important to shareholders?

    Understand what the capital adequacy ratio is and why it is a very important metric of financial soundness for evaluating ... Read Answer >>
  3. What is the difference between an investment and a retail bank?

    Learn the primary differences between retail banks and investment banks by examining the business activities, type of clients ... Read Answer >>
  4. What's the difference between investment banks and commercial banks?

    Understand the principal differences between investment banks and commercial banks, and the areas of banking services that ... Read Answer >>
  5. Why do commercial banks borrow from the Federal Reserve?

    Commercial banks borrow from the Federal Reserve primarily to meet reserve requirements when their cash on hand is low before ... Read Answer >>
Trading Center