Banking crisis hits Second Life

By Tom Sanders

Aug 14 2007 5:03PM

The Second Life bank has closed due to insolvency. The bank was unable to meet US$180,000 in withdrawal requests.

Prior to its bankruptcy, the bank held over US$700,000 in assets for its account holders. Account holders will have their assets converted into bonds at a yield of 3 percent. The bonds will be traded at the World Stock Exchange, allowing consumers to convert their assets into cash.

Ginko customers had staged a rush on their account balances following last month's gambling ban.

As it was unable to meet withdrawal requests, the bank had already lowered its daily withdrawal limits, thereby averting the forced sale of assets at a loss.

"We had some hope that calm would return to the public and we could resume normal operation, but that does not seem to be likely or even possible anymore, " the bank said on its website.

"We are not going to vanish and the investments we made still exist and will not be sold off."

Ginko is operated out of Sao Paulo in Brazil by an Nicholas Portocarrero and Adre Sanchez.

Second Life offers Linden Dollars as a form of payment within the virtual world. The exchange rate for the virtual currency is set at an electronic exchange. Acting as a central bank, the game's developer Linden Labs monitors the rates and controls the inflow of additional currency to control inflation.

Players with a premium subscription at a US$9.95 monthly fee, receive a weekly stipend of 300 Linden Dollars (slightly more than US$1). They can also make money by selling digital goods such as clothing, houses or other accessories.

Banks inside the virtual world operate without any oversight, a spokesperson for Linden Labs told vnunet.com. An individual could therefore easily create a pyramid scheme, offering steep interest rates where the early customers are paid from the deposits of later sign-ups to create a virtual buzz.

Linden Labs stressed that it warns users about the lack of regulators.

The company said that it is preparing a statement on the bank's collapse, but at the time of this story's posting, no such statement had been published.