Violet Fashion by Mindy
06-15-2009, 10:08 AM
June 15, 2009
Breakingviews.com
A Virtual Bank With Real Woes
By ROB COX
Uh-oh! Another big bank is the subject of a depositor run amid charges its chairman has run off with customers’ money. Thankfully, this scandal is taking place in Eve Online, a space-age virtual reality created by CCP, a games developer and Iceland’s coolest company. But these troubles in the ether may offer some valuable lessons for earthly banking and regulation.
Eve is one of the more successful multiplayer online games. Some 300,000 people — as it happens, nearly equal to the population of Iceland — pay $15 a month to navigate characters that pilot intergalactic spaceships, manufacture and trade goods, mine resources and enter into big alliances, or bloody battles, with one another.
Central to Eve’s strategy, players develop economies within an “anything goes” free-market framework that allows them to expand their fleets, buy weaponry and equipment and bolster defenses. Indeed, Eve has 66 marketplaces for some 5,000 items, with more than a million transactions a day.
Enter Ebank, this virtual universe’s online bank. Because players often do not have the interstellar credits — abbreviated to ISK, also the official abbreviation of the Icelandic kroner — they need to expand their fleets, an enterprising player created a bank that would accept deposits and lend to players who would pledge assets, like their spacecraft, as collateral.
The bank was a success. According to its Web site (yes, it has one), Ebank accumulated about 8.9 trillion ISK in deposits in 13,000 accounts belonging to 6,000 users. That was far more than it was able to lend out — there were around 1 trillion ISK of loans.
Somewhere along the way Ebank’s top executive, who went by the online handle Ricdic, apparently got greedy. According to CCP, he made off with deposits, which he then sold for real cash to gamers on a sort of black-market exchange separate from Eve.
CCP kicked Ricdic out of the game. And Ebank has temporarily shut down while its board of directors (yes, it had one of those too) tries to sort out the mess. Depositors, meanwhile, appear to have pulled 5.5 trillion ISK of deposits.
It’s not clear how much of that virtual money was embezzled and now needs to be found, somehow, by Ebank. But if the Eve chatter is accurate, it could amount to 10 percent of deposits withdrawn. That could wipe out whatever capital was used to finance Ebank’s loan book. As in the real world, that would spell insolvency.
And here’s where the Ebank story may have implications for real-world bankers, regulators and users of financial services. It’s not the first virtual bank to run into trouble — something similar happened in Second Life, which is governed by United States law.
In Eve’s virtual universe, there is no financial regulator, no Federal Deposit Insurance Corporation (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-org). And so far there is no lender of last resort, either.
For now, Ebank’s multinational directors appear to be acting just as many real-world boards would: engaging in finger-pointing and recriminations. Eventually, however, they will have to offer a solution to the depositors clamoring to get their money back in full.
As in the real economy, the customers could be tempted to appeal to a higher authority — Eve’s creators. That would probably involve appealing to the Council of Stellar Management — a body of nine members chosen by Eve players to represent them in discussions with CCP.
But the word from Reykjavik isn’t likely to comfort Ebank’s depositors. Eve’s creators at CCP — which employs its own economist and philosopher — take a laissez-faire approach, leaving most such matters to the game’s users to sort out. Unlike the Icelandic government, which allowed three local banks to nearly bankrupt Iceland with unchecked expansion, CCP is determined not to encourage entities to become too big to fail.
Whether and how Ebank can get out of its mess without a protective cocoon of support from Eve’s ultimate powers is unclear. But policy makers around the world, who bailed out greedy bankers, might want to monitor the situation.
This other-worldly simulation could provide clues on how they can avoid stepping in to save the financial system — and the moral hazard that goes with banks’ expectation that they will. ROB COX
http://www.nytimes.com/2009/06/15/business/15views.html
Breakingviews.com
A Virtual Bank With Real Woes
By ROB COX
Uh-oh! Another big bank is the subject of a depositor run amid charges its chairman has run off with customers’ money. Thankfully, this scandal is taking place in Eve Online, a space-age virtual reality created by CCP, a games developer and Iceland’s coolest company. But these troubles in the ether may offer some valuable lessons for earthly banking and regulation.
Eve is one of the more successful multiplayer online games. Some 300,000 people — as it happens, nearly equal to the population of Iceland — pay $15 a month to navigate characters that pilot intergalactic spaceships, manufacture and trade goods, mine resources and enter into big alliances, or bloody battles, with one another.
Central to Eve’s strategy, players develop economies within an “anything goes” free-market framework that allows them to expand their fleets, buy weaponry and equipment and bolster defenses. Indeed, Eve has 66 marketplaces for some 5,000 items, with more than a million transactions a day.
Enter Ebank, this virtual universe’s online bank. Because players often do not have the interstellar credits — abbreviated to ISK, also the official abbreviation of the Icelandic kroner — they need to expand their fleets, an enterprising player created a bank that would accept deposits and lend to players who would pledge assets, like their spacecraft, as collateral.
The bank was a success. According to its Web site (yes, it has one), Ebank accumulated about 8.9 trillion ISK in deposits in 13,000 accounts belonging to 6,000 users. That was far more than it was able to lend out — there were around 1 trillion ISK of loans.
Somewhere along the way Ebank’s top executive, who went by the online handle Ricdic, apparently got greedy. According to CCP, he made off with deposits, which he then sold for real cash to gamers on a sort of black-market exchange separate from Eve.
CCP kicked Ricdic out of the game. And Ebank has temporarily shut down while its board of directors (yes, it had one of those too) tries to sort out the mess. Depositors, meanwhile, appear to have pulled 5.5 trillion ISK of deposits.
It’s not clear how much of that virtual money was embezzled and now needs to be found, somehow, by Ebank. But if the Eve chatter is accurate, it could amount to 10 percent of deposits withdrawn. That could wipe out whatever capital was used to finance Ebank’s loan book. As in the real world, that would spell insolvency.
And here’s where the Ebank story may have implications for real-world bankers, regulators and users of financial services. It’s not the first virtual bank to run into trouble — something similar happened in Second Life, which is governed by United States law.
In Eve’s virtual universe, there is no financial regulator, no Federal Deposit Insurance Corporation (http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-org). And so far there is no lender of last resort, either.
For now, Ebank’s multinational directors appear to be acting just as many real-world boards would: engaging in finger-pointing and recriminations. Eventually, however, they will have to offer a solution to the depositors clamoring to get their money back in full.
As in the real economy, the customers could be tempted to appeal to a higher authority — Eve’s creators. That would probably involve appealing to the Council of Stellar Management — a body of nine members chosen by Eve players to represent them in discussions with CCP.
But the word from Reykjavik isn’t likely to comfort Ebank’s depositors. Eve’s creators at CCP — which employs its own economist and philosopher — take a laissez-faire approach, leaving most such matters to the game’s users to sort out. Unlike the Icelandic government, which allowed three local banks to nearly bankrupt Iceland with unchecked expansion, CCP is determined not to encourage entities to become too big to fail.
Whether and how Ebank can get out of its mess without a protective cocoon of support from Eve’s ultimate powers is unclear. But policy makers around the world, who bailed out greedy bankers, might want to monitor the situation.
This other-worldly simulation could provide clues on how they can avoid stepping in to save the financial system — and the moral hazard that goes with banks’ expectation that they will. ROB COX
http://www.nytimes.com/2009/06/15/business/15views.html