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Interesting how payments work in different countries. For example, in Australia when dealing in AUD, banks can participate in end-of-day multilateral netting. T

Interesting how payments work in different countries. For example, in Australia when dealing in AUD, banks can participate in end-of-day multilateral netting. That is, all the banks' inflows and outflows to all other banks are netted and sent to the Reserve Bank of Australia (RBA). The RBA is the banks' bank which holds bank's AUD denominated deposits in their separate accounts. Once the bank-to-bank net amounts have been calculated the RBA shuffles around a few numbers in databases to execute all the interbank transfers. It sounds like in the USA banks have to have accounts with each other in order to affect transfers. The RBA effectively adds a layer of indirection and in some ways ensures banks are meeting their capital requirements. Edit: I didn't read far enough. The UK has an impressive implementation of a Real-Time Gross Settlement system. My thoughts on the US interbank transfer system were coloured by a recent NPR Planet Money podcast (http://www.npr.org/blogs/money/2013/10/04/229224964/episode-489-the-invisible-plumbing-of-our-economy http://www.npr.org/blogs/money/2013/10/04/229224964/episode-...) where they compare the US and UK systems.

PeterisP 13y ago
Isn't it the same as the original article description of deferred net settlement? I believe most country-local-currency systems are (or used to) run this way.
- josu 13y ago
  > This thought process motivated the creation of deferred net settlement systems. In the UK, BACS is such a system and equivalents exist all over the world. Also, I can't think of a reason why they wouldn't do it this way.
  - zhte415 13y ago
    > Also, I can't think of a reason why they wouldn't do it this way. Credit risk and liquidity risk, as well as systemic risk exasperated by asynchronous transfers and time lag. Banks do sometimes go bankrupt. While MFGlobal was not a bank, it did demonstrate difficulty in unwinding client funds. LCFIs [2] usually cross regulatory environments, and failures of financial institutions are numerous, the combination quite unsettling. Herstatt [3] in 1974 led to continuous settlement in FX, having received DEM but not paying out USD. There's quite a reason for sometimes not netting things. [1] https://en.wikipedia.org/wiki/MF_Global https://en.wikipedia.org/wiki/MF_Global [2] https://en.wikipedia.org/wiki/Large_and_complex_financial_institutions https://en.wikipedia.org/wiki/Large_and_complex_financial_in... [3] https://en.wikipedia.org/wiki/Herstatt_Bank https://en.wikipedia.org/wiki/Herstatt_Bank

PeterisP 13y ago

Isn't it the same as the original article description of deferred net settlement? I believe most country-local-currency systems are (or used to) run this way.

josu 13y ago
> This thought process motivated the creation of deferred net settlement systems. In the UK, BACS is such a system and equivalents exist all over the world. Also, I can't think of a reason why they wouldn't do it this way.
- zhte415 13y ago
  > Also, I can't think of a reason why they wouldn't do it this way. Credit risk and liquidity risk, as well as systemic risk exasperated by asynchronous transfers and time lag. Banks do sometimes go bankrupt. While MFGlobal was not a bank, it did demonstrate difficulty in unwinding client funds. LCFIs [2] usually cross regulatory environments, and failures of financial institutions are numerous, the combination quite unsettling. Herstatt [3] in 1974 led to continuous settlement in FX, having received DEM but not paying out USD. There's quite a reason for sometimes not netting things. [1] https://en.wikipedia.org/wiki/MF_Global https://en.wikipedia.org/wiki/MF_Global [2] https://en.wikipedia.org/wiki/Large_and_complex_financial_institutions https://en.wikipedia.org/wiki/Large_and_complex_financial_in... [3] https://en.wikipedia.org/wiki/Herstatt_Bank https://en.wikipedia.org/wiki/Herstatt_Bank