Which would be far less secure than just hashing the entire password. I don't think it takes long to generate a rainbow table based on one character long pass-phrases.
I seriously doubt they do this, storing a hash for every single character would eat up a lot of space very quickly. My guess is that they store your password in plain-text. What bank is this btw?
HSBC also did this. For business they use hard tokens. IIRC they were moving personal accounts to hard tokens too, I moved countries and lost access to my online account because of this (there was no money there, I tried to get them to send me a token to my new address but the person I talked to was hard to understand and the token never arrived).
What would be the point? The purpose of hash functions is that they are difficult to invert. How many characters are there? How difficult would it be to hash each character? Answer: easy.
I seriously doubt they do this, storing a hash for every single character would eat up a lot of space very quickly. My guess is that they store your password in plain-text. What bank is this btw?