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
1. In the past: banks don’t want to send each other money directly. What if bank A gave money to bank B, then B suddenly goes bankrupt. Now A’s debtors have lost their money and B’s creditor didn’t receive it. As transfers can be for billions, that’s a big risk. So banks only want to send money to the one institution they trust: the central bank. Banks send their payment instructions to a “clearing house”. Every few hours they get back a report saying: bank A owes bank B amount X, as more people transferred from A to B than the other way around. Now A will send your money (and many other transfers, all grouped together in one big settlement transaction) to the account they hold at the central bank, then forward that to the account B holds at the central bank. And after that, B will withdraw that money and forward the individual credits to their customers. The central bank was closed outside of office hours. So you had to wait for interbank transfers.
2. At least in the EU “Instant Payments” are now a thing and your transfers should be booked to the other bank within 20 seconds. In those seconds the creditor bank checks if they can handle the transaction and “promise” to the clearing house they’ll transfer the funds and are now responsible for it. So for the debtor bank it’s safe to send the money. This took years of regulatory pressure to achieve…
1. In the past: banks don’t want to send each other money directly. What if bank A gave money to bank B, then B suddenly goes bankrupt. Now A’s debtors have lost their money and B’s creditor didn’t receive it. As transfers can be for billions, that’s a big risk. So banks only want to send money to the one institution they trust: the central bank. Banks send their payment instructions to a “clearing house”. Every few hours they get back a report saying: bank A owes bank B amount X, as more people transferred from A to B than the other way around. Now A will send your money (and many other transfers, all grouped together in one big settlement transaction) to the account they hold at the central bank, then forward that to the account B holds at the central bank. And after that, B will withdraw that money and forward the individual credits to their customers. The central bank was closed outside of office hours. So you had to wait for interbank transfers.
2. At least in the EU “Instant Payments” are now a thing and your transfers should be booked to the other bank within 20 seconds. In those seconds the creditor bank checks if they can handle the transaction and “promise” to the clearing house they’ll transfer the funds and are now responsible for it. So for the debtor bank it’s safe to send the money. This took years of regulatory pressure to achieve…
1. In the past: banks don’t want to send each other money directly. What if bank A gave money to bank B, then B suddenly goes bankrupt. Now A’s debtors have lost their money and B’s creditor didn’t receive it. As transfers can be for billions, that’s a big risk. So banks only want to send money to the one institution they trust: the central bank. Banks send their payment instructions to a “clearing house”. Every few hours they get back a report saying: bank A owes bank B amount X, as more people transferred from A to B than the other way around. Now A will send your money (and many other transfers, all grouped together in one big settlement transaction) to the account they hold at the central bank, then forward that to the account B holds at the central bank. And after that, B will withdraw that money and forward the individual credits to their customers. The central bank was closed outside of office hours. So you had to wait for interbank transfers.
2. At least in the EU “Instant Payments” are now a thing and your transfers should be booked to the other bank within 20 seconds. In those seconds the creditor bank checks if they can handle the transaction and “promise” to the clearing house they’ll transfer the funds and are now responsible for it. So for the debtor bank it’s safe to send the money. This took years of regulatory pressure to achieve…
When you transfer cash from an account at bank A to bank B many things happen:
—————
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.”
—————
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.
—————
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.
————
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?
When you transfer cash from an account at bank A to bank B many things happen:
—————
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.”
—————
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.
—————
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.
————
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?
When you transfer cash from an account at bank A to bank B many things happen:
—————
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.”
—————
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.
—————
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.
————
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?
One of the most annoying things about banks by far.
Nothing worse then forgetting about a holiday only for your ACH transfer to take longer than expected and suffer from potential late fees.
One of the most annoying things about banks by far.
Nothing worse then forgetting about a holiday only for your ACH transfer to take longer than expected and suffer from potential late fees.
They make money investing your money that is waiting to clear. It adds to their working capital for investment puposes.
It took three days in aus to xfer money even between accounts at the same bank ! Govt introduced legislation to reduce it and it cost virtually nothing for banks to comply.
One of the most annoying things about banks by far.
Nothing worse then forgetting about a holiday only for your ACH transfer to take longer than expected and suffer from potential late fees.
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