EVE Online player run bank 1.2 trillion ISK in the red, freezes all accounts

Players of the sci-fi game EVE Online experienced another parallel yesterday between what happens in the game's virtual economy and the real-world financial woes that have hit the banking industry. EBANK -- the game's largest player-run financial entity, disclosed that they are 1.2 trillion ISK (InterStellar Kredits) in the red, and froze the accounts of all players and player organizations which had invested with the bank.

EVE Online has one of the most developed virtual economies to be found in any massively multiplayer online game. Given that EVE is a 'sandbox', or an open world where gamers can do as they choose within that setting, the title's economy is player-driven, which creates many opportunities for a clever gamer. EVE Online players can make (or lose) their virtual fortunes as traders, industrialists, market manipulators, and a whole range of other playstyles -- which are all peripheral to the core gameplay of establishing and toppling empires through force or political machinations.

However, some EVE Online subscribers expand upon what the game's developers CCP Games have created and establish player-run financial ventures -- offering IPOs, various investment schemes, and even banks which pay out interest to their customers.

This is no easy task. It's done without direct help from CCP Games beyond the developer-provided API (which players can build third-party tools around, to monitor all sorts of in-game data). More than anything, such player-run ventures are hinged on trust, that rarest of commodities in EVE Online.

Still, some ventures like EBANK have enjoyed success in the past. The bank's board of directors and staff worked hard over the years to establish the viability, and credibility, of player-run financial ventures in EVE. Beyond any issues of trust, part of that credibility came from the faith players had that safeguards were in place to prevent any single EBANK employee from doing a runner with the trillions of ISK that the playerbase has deposited. Safeguards were in place, but this didn't stop former EBANK CEO "Ricdic", perhaps EVE Online's answer to Bernie Madoff, from embezzling well over 200 billion ISK in June and triggering a massive run on the bank as investor confidence was shaken, if not shattered.

There are numerous parallels between real world economies and that of EVE's virtual galaxy called New Eden... this clearly extends to corporate malfeasance as well.

It was thought that EBANK was recovering, as they weathered that substantial run on the bank and have continued operation in the months since. However, a more accurate picture of the bank's financial state has now emerged with the announcement of the 1.2 trillion ISK deficit.

Recently appointed EBANK Chairman Ray McCormack alerted customers and the game's playerbase to the situation and the reasons behind the decision to freeze accounts. McCormack didn't pull any punches when he discussed the ways EBANK had been mismanaged in the past. (It should be noted that EBANK has gone through several management changes since its inception, with McCormack one of the newest players brought aboard.) According to a statement from EBANK's board of directors: "controls were not enforced, auditing was never completed and reporting was almost non-existent."

Ricdic's (estimated) 250 billion ISK embezzlement was compounded by another 380 billion ISK in defaulted loans. What wasn't understood at the time of the embezzlement was how badly the past mismanagement of EBANK, particularly in terms of financial reporting, had impacted the entity.

After a recent management shuffle and closer scrutiny of EBANK's operations, the board of directors came to the conclusion that the deficit isn't only a matter of billions of ISK, it exceeds one trillion ISK and this shortfall increases by another 12 billion ISK each month.

Given EBANK's situation, the freeze on all accounts means no withdrawals will be processed and account interest will not be accrued until the bank can recover. McCormack explained that "withdrawals will be allowed once the bank achieves a maintainable equity status of 90% (1.8t currently); they will be stopped again should that fall below 80%."

He stated that accounts will bear interest again once "interest from non-intensive activities sustainably matches or exceeds the monthly interest expenses" and once "the bank achieves an equity status not less than 85% of its liabilities."

The situation is already grim, but in the name of full disclosure, McCormack said, "There are possibly further losses not accounted for, such as operational losses, additional theft and reporting errors. As these are established we will report on them."

These future disclosures will involve EBANK pulling data from the full APIs for all staff members who have had access to deposited funds. McCormack said, "You can at any time look at our Public Financials to see exactly with whom and where your ISK is." These Public Financials will be updated and released on a weekly basis.

EBANK has already released its financial information to the public and the Loss Analysis (aka "Where did all the ISK go?") is particularly revealing, showing the extent to which defaulted loans have impacted the bank.

Given all this doom and gloom, what is the future of EBANK?

Is there a future for EBANK?

This remains to be seen. The coming months will be a time when the bank consolidates its various ISK-generating ventures, and bank employee salaries are being put on hold until the bank stabilizes. Loans are being collateralized and the individuals and corporations who have defaulted will be named publicly. This is in keeping with EBANK's aim for greater transparency.

EBANK's board can't give a specific timeframe before they achieve full liquidity once gain, but they believe it will happen within a year. This will come as little comfort to the EBANK customers who are now cut off from their funds and the interest it once generated for them.

Looking beyond EBANK's troubles, 2009 has been a difficult year for player-run financial ventures in EVE Online.The failings of various high-profile ventures have cast even more doubt on the viability of what players can really achieve in EVE Online in these gray areas where players expand upon the game beyond the auspices of the game's creators.

Taking a step back here, this is one of those situations where even some die-hard EVE Online players may let out a Keanu "whoah" at the realization of what their fellow players can build up in this game, and the dramatic ways that these institutions can collapse. The truth is many EVE Online players simply enjoy the game for the sci-fi escapism it offers, with plenty of the requisite lasers and explosions. However, it's also a game with the depth to function as a limited virtual society with all the potential -- and potential for failure -- that implies. The fact that situations in the game like the EBANK debacle can parallel real world society is a testament to just how good a simulation of a galactic society EVE Online is starting to become. Or maybe it just means we're taking our games far too seriously.

Perhaps, as with this real world era of economic uncertainty and crumbling financial institutions, the situation will eventually turn around for these establishments the players are building. Until then, however, EBANK investors and staff alike will have to ride out the storm and hope there are better days ahead.