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Does it process individual transactions? RTGS stands for Real Time Gross Settlement, and my understanding is that it lets banks settle the total amount of proce

by ttrei 2y ago

Does it process individual transactions? RTGS stands for Real Time Gross Settlement, and my understanding is that it lets banks settle the total amount of processed transactions, thus leaving out any details of particular transactions.

JumpCrisscross 2y ago
> Does it process individual transactions? Yes. FedNow and FedWire are real-time rails. FedACH is net settled, but I believe the Fed would see the full contents of each ACH message.
lmz 2y ago
> lets banks settle the total amount of processed transactions, thus leaving out any details of particular transactions This is the definition of a Net settlement scheme (multiple transactions are combined at end of a period, resulting in only the net changes being transferred), not a Gross settlement scheme.
- lxgr 2y ago
  FedACH is a net settled scheme, but even then, the operator of such a scheme usually has visibility into individual payments (unless participating banks settle everything bilaterally and there is no central operator/hub).
  - lmz 2y ago
    I was merely clarifying their use of "RTGS" vs their textual description of it.
lxgr 2y ago
For important/large payments, banks will often let customers allow do do individual transactions on the RTGS. That's how wire transfers work in the US, for example, and that's one reason why they're more expensive than ACH: Without netting, transfers actually reduce reserves, and by extension liquidity, from the sending bank in real time. FedACH in particular is a retail payment service, and the operator would have visibility into individual transactions, I believe.
- JumpCrisscross 2y ago
  > that's one reason why they're more expensive than ACH The Fed charges between 4 and 19¢ for a wire [1]. For the delta to be explained by the cost of warehousing reserves, we'd need to assume Zimbabwean costs of capital for the big banks. RTGS is fundamentally more expensive than net settling. But wires are expensive because we're getting hosed. (If you wire frequently, there are banks that won't charge you for it, e.g. Fidelity.) [1] https://www.frbservices.org/resources/fees/wires-2024 https://www.frbservices.org/resources/fees/wires-2024 if you're a small bank, it could be as much as 95¢
  - lxgr 2y ago
    Completely agree: Of course the markup that banks charge for them is not proportional in any way. If it were, FedNow (which is also real-time, although I'm not sure on whether it's also real-time settled) and non-US equivalents would be equally expensive, yet SEPA instant and FPS are usually free to consumers. They do have an amount cap per day, though.
    - rsynnott 2y ago
      While SEPA Instant has a cap (100k), SEPA Slow (or, well, same-day/next-day, the normal one) does not, though some banks may impose their own. Weirdly, 100k is not an absolute limit; the scheme allows banks to have bilateral agreements to exceed it, though I’m not sure how common this is.
      - JumpCrisscross 2y ago
        What are house payments usually made with?
        lxgr 2y ago
        Just regular "SEPA slow" (i.e. SEPA credit transfer), as far as I know, unless they're financed by a mortgage/loan anyway. Some banks offer "rush payments" for that use case in particular, which I believe essentially correspond to either an RTGS payment and a phone call or fax to the receiving bank ("hey, can you check your TARGET2 account real quick for our transfer <reference> and credit your account x for the sum please?"), or just a regular old SEPA credit transfer with somebody making sure that it's not caught in some AML or fraud control queue for several days. It's not a pan-European standardized scheme, in any case.

by ttrei 2y ago

JumpCrisscross 2y ago

> Does it process individual transactions? Yes. FedNow and FedWire are real-time rails. FedACH is net settled, but I believe the Fed would see the full contents of each ACH message.

lmz 2y ago

> lets banks settle the total amount of processed transactions, thus leaving out any details of particular transactions This is the definition of a Net settlement scheme (multiple transactions are combined at end of a period, resulting in only the net changes being transferred), not a Gross settlement scheme.

lxgr 2y ago
FedACH is a net settled scheme, but even then, the operator of such a scheme usually has visibility into individual payments (unless participating banks settle everything bilaterally and there is no central operator/hub).
- lmz 2y ago
  I was merely clarifying their use of "RTGS" vs their textual description of it.

lxgr 2y ago

For important/large payments, banks will often let customers allow do do individual transactions on the RTGS. That's how wire transfers work in the US, for example, and that's one reason why they're more expensive than ACH: Without netting, transfers actually reduce reserves, and by extension liquidity, from the sending bank in real time. FedACH in particular is a retail payment service, and the operator would have visibility into individual transactions, I believe.

JumpCrisscross 2y ago
> that's one reason why they're more expensive than ACH The Fed charges between 4 and 19¢ for a wire [1]. For the delta to be explained by the cost of warehousing reserves, we'd need to assume Zimbabwean costs of capital for the big banks. RTGS is fundamentally more expensive than net settling. But wires are expensive because we're getting hosed. (If you wire frequently, there are banks that won't charge you for it, e.g. Fidelity.) [1] https://www.frbservices.org/resources/fees/wires-2024 https://www.frbservices.org/resources/fees/wires-2024 if you're a small bank, it could be as much as 95¢
- lxgr 2y ago
  Completely agree: Of course the markup that banks charge for them is not proportional in any way. If it were, FedNow (which is also real-time, although I'm not sure on whether it's also real-time settled) and non-US equivalents would be equally expensive, yet SEPA instant and FPS are usually free to consumers. They do have an amount cap per day, though.
  - rsynnott 2y ago
    While SEPA Instant has a cap (100k), SEPA Slow (or, well, same-day/next-day, the normal one) does not, though some banks may impose their own. Weirdly, 100k is not an absolute limit; the scheme allows banks to have bilateral agreements to exceed it, though I’m not sure how common this is.
    - JumpCrisscross 2y ago
      What are house payments usually made with?
      - lxgr 2y ago
        Just regular "SEPA slow" (i.e. SEPA credit transfer), as far as I know, unless they're financed by a mortgage/loan anyway. Some banks offer "rush payments" for that use case in particular, which I believe essentially correspond to either an RTGS payment and a phone call or fax to the receiving bank ("hey, can you check your TARGET2 account real quick for our transfer <reference> and credit your account x for the sum please?"), or just a regular old SEPA credit transfer with somebody making sure that it's not caught in some AML or fraud control queue for several days. It's not a pan-European standardized scheme, in any case.