Friday, July 6, 2012

When Banks Die

Today I want to just point out a few things that have gone almost completely unreported in the US. Let me just first say that I have no idea if this is really a case of a "computer glitch" or a sign of some much larger failure in the banking system. But I have never heard of this type of problem in banking since Banks began making wide use of computers in the 1980's.

From the Gaurdian in the UK:

The drama began on the night of 19 June when Royal Bank of Scotland discovered what was described as a computer glitch, which was preventing payments to and from accounts at NatWest, RBS and Ulster Bank. The botched software upgrade has affected millions of people, both the bank's own customers and those expecting payments from accounts held by these banks. The problems have affected savings and offset mortgages as well as current accounts.

 The unprecedented meltdown meant millions of customers were unable to see how much money was in their accounts and whether bills had been paid. It left a defendant behind bars over the weekend after his bail money failed to arrive, and resulted in at least one family being forced out of their home. Some customers said they had no option but to take out payday loans to cover costs.
On 28 June, with the crisis into its 10th day, it was clear that while normal service had resumed for some, other people's finances were still in chaos.

Non-customers Many of those caught up in the fiasco aren't even NatWest/RBS/Ulster Bank customers, but have been hit financially because their employer banks with the group, and their wages did not appear in their account on time.
There have been reports of people unable to buy food or pay their rent. Some people have told of direct debits being returned unpaid because of lack of funds, triggering late payment charges.

A UK resident posting on TFMetals had  this to say... (Scroll down to Bank Update)

I have confirmed that the bank is lying. I went to the branch today. The official line from the RBS group is that the problems are fixed and that missing transactions will be posted this weekend.
First of all, there were NO systems being operated in the branch today. the computers are ornaments. The tellers are using paper pads and are handwriting the transactions. If the systems were fixed then the computers would be in use. Something is very wrong at Ulsterbank.
I got in there early to avoid the queues and was one of the first in the door. Management and staff are pouncing on anyone walking in to try and minimise the queue for tellers by using fast lodge (put the money in an envelope, they deal with it later) or fielding questions. i got the offer of assistance and mentioned that I noticed they were hiring data entry clerks to try and clear their backlog. The guy was quick to point out how they were doing this to clear the backlog as if this was positive news. i told him i noticed those jobs started on Monday and that perhaps he could pass it up the line that customers don't appreciate being told it will be sorted by Monday when in fact we can see it will not. i didn't give him a hard time, he looked broken.
I managed to withdraw some money using my drivers licence, there was no record of any money in my account but they gave me it anyway. (There should be money there)
By the time I left the branch the queue was out of the door and round the corner. I expected it to be bad but this was epic. This was at least an hour + wait and nobody had any other option. Nobody has received either last weeks wages or this weeks, this now includes those paid monthly and there will be a plethora of direct debits being refused. Most people have these set to the end of the month. A lot of mortgages, insurance policies, rents etc will not be getting paid. This must be having effects on business cashflow by now.
A funny incident in there though, I was standing behind an older man in the queue, one of the assistants was walking  down the queue asking if anyonone wanted to make a lodgement. ' not bloody likely really, is it?' was his response. Got a few wry smiles from the folks queuing.
The central bank finally seems to have awoken saying that this is unacceptable, thanks guys. Here's hoping they make them pay compensation. Surely they must have to.
So to sum it up, no solution, no money for hundreds of thousands, millions in missing cash flow to business, spending plummeting and no end in sight as yet.
More and more people commenting on the forums are planning to move banks, some were giving them the benefit of the doubt but the longer this goes on and the blatant lying by customer service executives is changing their minds. Ulsterbank could cease to exist rather quickly if they don't do something spectacular soon.

And just when this sounded like a limited, isolated event we get this:

Via Bloomberg:
and from Interfax:
RUSSIA-SBERBANK-CARDS-MALFUNCTION MOSCOW. July 6. (Interfax) – Sberbank of Russia (RTS: SBER) has suspended credit and debit card operations due to a technical malfunction, the bank told Interfax. “All cards are not being serviced,” it said.
How many times did these glitches occur among the world's largest and likely highest paid IT services groups before the European financial crisis pulled back the curtain and showed the proximity of the liquidity cliff for so many of the 'biggest' banks in the world?

Sberbank just happens to be the biggest Russian bank.

So I pose the question, what would happen if your debit & credit cards quit working one day? What would happen if your paycheck was not credited to your account on payday? Would you have enough cash to buy groceries? Gas? A taxi to the airport if you're on a trip?

This isn't even a failure of our money system, its merely a failure of money flow & distribution. Does it seem odd that these events, and others, seem to be happening since 2008? What has changed?

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