A run on a virtual bank in the online world of Second Life produced some real-life losses for their virtual customers, and has prompted the software publisher of the computerized cosmos to put some real regulation in place. Linden Lab has announced through a corporate blog posting that on Jan. 22 it will ban any virtual bank from offering interest-bearing accounts of Second Life currency (the “linden,” which trades at about 270-to-$1US, according to reports) unless it has a real-life bank charter, such as the Second Life units of ING or ABN Amro.
Over the course of Second Life’s evolution, many players had opened up venues of financial services activity catering to the linden (which are acquired by spending actual currency). With more than $1 million-a-day of activity, these “banks” earned lindens by charging fees at virtual ATMs, or gained deposits by offering out-of-this-word (and THAT-world) annualized interest rates of more than 40 percent – with some up to 60 percent, according to Linden Lab. Those Ponzi-scheme structures inevitably led to incidents like the run on Second Life-based Ginko Financial, which collapsed in insolvency and cost unlucky linden investors more than $700,000 in cold, tangible cash. (Ginko’s operators blamed an earlier Second Life gambling ban that prompted people to withdraw their money in waves).
“There is no workable alternative” other than to shutter the wildcat virtual banks, Linden’s official blog notes. “The so-called banks are not operated, overseen or insured by Linden Lab, nor can we predict which will fail or when. And Linden Lab isn’t, and can’t start acting as, a banking regulator.
