At least where I live, if I make a transfer between my accounts (with different banks) too late on a Friday, the money won’t be available until Monday. But there are no humans involved in this process – it seems to me that could be instantaneous as far as the technology is concerned. What am I missing?
In: 1897
When you transfer cash from an account at bank A to bank B many things happen:
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AML/KYC/anti-fraud checks. For small amounts between accounts you have already connected to each other this will all be automated, so that isn’t an issue… but it would be a little weird for consumers if they said “you can transfer <$5000 on the weekend, but more than that and it will be delayed until Monday.”
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Theft risk for business clients. For your personal individual checking account you probably don’t distinguish between Mon-Friday and the weekend, but if you are the owner/accountant for a small business you want to enjoy your weekend.
You don’t want to have to monitor the dry cleaners bank balances to make sure that nobody is stealing funds.
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Reserve requirements and regulatory restrictions. Your small transaction by itself isn’t going to change anything, but consider things like the run on SVB. That run happened during the week, but what if the depositors had gotten spooked on a Friday night. Everyone would be trying to move money out of the bank on a weekend, and the bank might not have the ability to facilitate those automatic transfers without breaching its capital requirements.
Currently weekends offer the regulators a period of relative calm during which they can attempt to resolve issues. Prospective buyers can review the books of a failing institution over a 48hour period and make bids on the bank. With continuous settlement and no stoppages of flows it would trying to bid for a moving target.
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Finally bond market days and the absence of an electronic bond market exchange
Banks will hold cash reserves in short dated bonds (often T-Bills but also high quality corporates). If a bank needs to raise cash to facilitate automated transfer, it would have to sell an asset…. but now it needs a counter-party willing to buy the asset… and those market traders have all gone home for the weekend.
So to really make this work you need a 24/7 electronic exchange where bots can buy and sell short dated T-bills and other bonds. Beyond behind a lot to setup and establish, there is just no demand here.
What is the purpose of this exchange? To enable T-bill exchanges, so as to enable banks to exchange cash, so as to enable you to move cash from one checking account to another on the weekend.
But why? Why do you need to do that?
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