Banks are the place where individuals park their money. Bank’s indicate that your life’s savings are secure in their lockers or vaults. But as everything is getting digital, today banks deal with data and most of the transactions are online with just a click of few buttons and these automations and convenient banking techniques cause a lot of drawbacks if not used properly. These have created a lot of mistakes in the Industry where the customers and clients have lost their trust in the banks.
Here are some of the Biggest Blunders of Banking History
Citi Bank “Biggest blunder in banking history”
Citi Bank was acting as a loan agent between the Cosmetic company Revlon and its creditors. The bank had to pay an amount of USD 8 Million to the lenders. In February 2021 Citi bank paid an amount of USD 900 Million (around INR 6,530 crores) to the lenders. Instead of paying the interest amount to the lenders the bank paid the full loan amount. Citi bank had notified the creditors within 24 hours of the mistake but yet it hadn’t received back around USD 500 Million from around 10 others.
The bank moved to the court where the Judge said that the issue was in clash between two principles: money which is sent by mistake is supposed to be returned but if the lender is paid back in full, the creditor should not have to worry. Here, the bank had transferred to money to the people whom they owed money and the receiver had no reason to believe that it was an error.
The Judge also said that Citi group transferred the money on 11 August 2020 when the due date for the payment of interest was on 28 August 2020 and the only way the interest would have been a due on 11 August 2020 only if Revlon was paying the principal amount early.
As the lenders did not feel that the amount transferred was by mistake Citi Bank would lose around half a Million USD which is considered as the “Biggest Blunder in the Banking History”. The creditors are still not free to use the money as USD 504 Million is still frozen.
KfW bank “Germany’s dumbest bank
KfW bank accidently sent around 5 billion Euros (INR 43,966 crores) to accounts with four other banks. The bank has claimed that it was human error as an experienced programmer has committed an error which made their software automatically to transfer the amounts. The Bloomberg news has said that around 6 billion Euros have been transferred. The error was pointed out by the German Central Bank and KfW had claimed that it had immediately rectified the error not causing any financial damage.
There was a similar incident which had happened during the year 2008 where the bank transferred 320 Million Euros to Lehman brothers on the day, they filed their bankruptcy.
KfW was termed as “Germany’s dumbest bank” by the mass – market daily Bild.
Deutsche Bank’s 26 Billion Euros Blunder
The bank accidently sent 26 Billion Euros to an account in Deutsche Boerse AG's Eurex clearinghouse in 2018. The bank had claimed that it was an operational error which happened during the movement of the collateral between Deutsche Bank's principal accounts and Deutsche Bank's Eurex account. The spokesman of Deutsche bank said that the errors was identified within a matter of minutes and was rectified. He also added that they had taken measures to not repeat the mistakes. This mistake had cost the company’s shares to fall by 25% that year.
There was another incident which happened in 2015 where the bank transferred around USD 6 Billion to a client’s account in the hedge fund in U. S, the bank had received back the money the next day. It has told that the transfer of money was made by a junior foreign exchange sales department employee, when the boss was on vacation.
PayPal’s USD 92 quadrillion blunder
PayPal the online – money transfer company had accidently transferred an amount of USD 92 quadrillion to a man in Delaware named Chris Reynolds during the year 2013. The man said he was shocked when he received his monthly statement through an e-mail.
Reynolds was a PayPal customer for the past 10 years and used it to buy and sell items on eBay mostly vintage car parts. He has told that he usually wouldn’t spend more than $100 a month.
PayPal had admitted the error and paid an amount to Reynold as a compensation which was not disclosed. PayPal had admitted that it was a technical mistake.
The above are some important Blunders committed by the banking industry. There are a lot more blunders and with the implementation of technology the blunders have increased. The banks need to train the employees with the new technologies and make sure that the blunders don’t repeat. Updating their security systems and updating their employee’s knowledge on a regular basis will help to an extent to avoid these mistakes.
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