The silent but deadly bank run

"We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts. We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly."

The notice posted on the Icesave Web site today is the electronic equivalent of a Great Depression bank shutting its doors to customers as they queue to withdraw their savings.

Halldor J Kristjansson, the new manager of Icesave parent bank Landsbanki, says the rush to withdraw up to £4 billion in deposits by savers in the UK has contributed to the problems experienced by the troubled bank. Funds started moving out of the bank after the news broke about the nationalisation of Glitnir, the third-largest Icelandic bank.

Welcome to the new world of silent bank runs, where large sums of money can be transferred around the world at the click of a mouse.

As this Reuters report points out: "In the Great Depression between 1929 and 1933, much of the damage was caused by runs on banks that gained momentum as people saw lines of customers waiting to salvage cash."

But in today's interconnected world Wachovia and European banks Northern Rock, Fortis and now Icesave have all been damaged by so-called online silent bank runs during the credit crisis.  

As Carlos Evans, a Wachovia wholesale banking executive pointed out in an interview with the Kansas City Star: "You go from being weakened to in trouble in a matter of days. I don't think people understand how quickly events unfolded."