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> 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. A

• 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