How come nothing ever goes through on like a balance sheet when online banking over the weekend? It always updates on Monday it seems like. What’s that all about?
In: Economics
Mostly tradition from when physical banks were closed on weekends, it’s also a good time for them to do system maintenance.
Real-time payments are coming, but they are huge projects to implement.
Banks are reliant on the Federal Reserve to process most interbank transactions. The Federal Reserve processes transactions once daily Monday through Friday. Traditionally the Fed was closed weekends because it was a government entity and the government is closed on weekends.
More modernly it would be possible to automate all of this to update in real time. However, banking regulations are written in such a way that they wouldn’t really work if transactions were processed in real time/over the weekend.
Essentially, banks needs to maintain a minimum amount of capital or they get declared insolvent and that declaration has a really big impact on their ability to function. Banks are also encouraged to only maintain that absolute bare minimum amount of capital and most do. This means that throughout the day they are constantly popping above and below their minimum requirements, but that’s ok as long as they are above it at 8am every weekday. So if a bank accidentally goes below its minimum capital requirements during the nightly transaction process it has a few hours to borrow money from someone else to get back above insolvency and this basically allows the system to work.
Typically Friday’s transaction batch is much larger than the other days, which means that banks might be substantially below their capital requirements Friday night, but this also isn’t a big deal because they have all weekend to fix it.
The banking regulations could be completely rewritten to account for real time processing, but frankly there’s no point in doing that when the current system works fine and if money really needs to be transferred in real time its possible to do that, you just have to pay more.
Banking hours are generally only Monday through Friday, they open out of “courtesy” and not wanting to lose out on the business. But the staff that checks and manages the transactions don’t show up until Monday.
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