why do banks need an extra day to process paychecks after ‘bank holidays’ when almost everything is automatic/digital?
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[Have you seen _Superman III_? Ok, how about _Office Space_? This’d be easier if you had.](https://www.youtube.com/watch?v=iz7XK98_9LM)
OK, let’s talk about pie. Imagine “money” as your favorite kind of pie. Pie **is** money. Each slice of pie is worth _something_: bigger slice is ‘worth’ more, smaller is ‘worth’ less.
When pie is sliced, _there are crumbs_. Tiny bits of pie – which we already agreed _is_ money – that aren’t part of the slice OR the pie. Crumbs.
Banks exist, and make money, by collecting and counting the crumbs. Sometimes crumbs are called “dividends” or “interest” but the key thing to know is that _crumbs are money_. And Banks care about every microscopic crumb.
Banks take your slice of pie and “deposit it” while giving you a slice of their pie “from the vault”. IT IS NOT THE SAME PIECE OF PIE. Your deposited slice goes into the vault where the Bank earns **interest** on it. Interest is another word for crumbs. Imagine a tiny, tiny, microscopic bit of crust flaking off. Does nothing to ‘devalue’ the slice: but a flake of crust is a flake of crust. It has value.
The bank takes your slice of pie (deposits your check) and collects the crumbs from _thousands of transactions_. Again, it’s _never_ a whole cent. It’s fractions of a cent. Eventually, a lot of microscopic crumbs swept into a pile becomes an actual pile of crumbs.
The crumbs and little leftover bits _are still money_. Fractions of a fraction. If pie equals 100 and 99.5% the pie went out in slices _there’s still money on the plate._ Not a lot. _Crumbs_. Banks (literally) “sweep these up” and put them into their General Ledger. Every day. And TWICE on Bank Holidays.
“Holds” are the Bank keeping your slice of pie in the vault, collecting crust flakes and crumbs. “Bank Holidays” allow them to get an extra day of “interest” on deposits. To collect more crumbs.
TLDR: Banks make interest on your “deposit” and a Bank Holiday adds an extra day of interest. Also, Banks want your pie.
On a related note – America is an amazing place and I love it but I did notice the banking processes there are weirdly archaic. Still using physically signed checks and physically signing bills are processes that were phased out of most of the developed world a decade ago. I’ve genuinely paid/receipted money easier in third world countries.
I don’t understand how America is such an advanced economy but people still pay their bills with signed paper cheques.
Each bank collects their own credits and debits in a batch, but they (generally) all trade that info with all the other banks at the end of the business day. This is one of the reasons the banks follow “bank holidays” all the same for processing – the offices and branches might be open or closed for regional/state/local events but the Fed is closed so they can’t all swap their transactions and money at the end of a holiday.
A lot of people commenting here that have never worked at a bank.
Financial regs and fraud prevention folks.
Banks make money on float sure, but it’s not the processing time (1 business day) float.
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Because there are still manual processes involved which must be completed. At the bank I worked for, a file would come in from the FED, and we would put it through filters for security, then we’d post it to the accounts. This is obviously a simplified explanation.
Even though a lot of transactions are run automatically, there is manual “oversight”. So some things don’t actually run outside of business hours
I’ve worked in operations for a big bank for ten years…
most of the things that feel “automatic/digital” to the consumer don’t run on their own inside the bank and still need to be initiated and overseen by bank employees
yes, we use computers and technology to automate as many internal functions as we can, but human beings still initiate and monitor the zillion little automated processes that occur across all the different departments of a big bank on a daily basis. The bank I work for has thousands of employees nationally and most of them aren’t tellers working in branches
and also for a bank holiday like yesterday, the federal reserve was closed so banks couldn’t send or receive money in the first place
Part of this is that it will litterally take an act of congress to change how information is transferred between banks. Banks are required to ise the Fed as their clearing house and follow their rules. New technology makes it possible to transfer faster? Sorry, 60 year old laws states we can’t change. Call your congressperson to get it changed.
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