Rebirth 79: I opened a bank in the United States

Chapter 163 Settlement Business
"In terms of clearing, we have the Georgia Clearing House in the Georgia Banking Association. There will be a clearing every 20 days, and then there will be corresponding settlements in the remaining ten days."

"However, most of our settlement quotas are not high, so we rarely use the Fed's settlement services."

"Wait, Goodman, are you saying that we are not a member bank of the Federal Reserve System, and we can also use the Fed settlement service? Or have we used it before?"

Rarely used and not used are two completely different things!Hearing the meaning of Goodman's words, Carter quickly raised his hand to ask questions
"We can't use it directly, but we can use it indirectly. Macon's Abrams Bank is a member bank of the Federal Reserve System. Before we needed large settlements, we would ask for their help."

Dry language is never as easy to understand as simple and intuitive images.Goodman obviously knew this very well. While talking, he took the pen and paper on the table and began to draw a logic map for Carter.

"Let's assume a scenario. Now we have a customer who has deposited 100 million US dollars in our Black Bank. Now he wants to transfer the money to any bank. Let's say it is X Bank in Maryland. At this time, Neither our bank nor Bank X is a member of the Federal Reserve System, so what should we do? Hire a cash truck and just send this million dollars over there stupidly? By the time we get there, the customer will already be in Maryland Too busy to panic."

After drawing boxes representing the two banks on the paper in front of him, Goodman continued:

“You can’t do that, so what do we usually do? We’ll first send a $100 million trade request to Abrams Bank, and at this point one million dollars, the money is actually still in our bank.”

On the box representing Black Bank, there is now a box representing Abrams Bank, and a straight line points to it:

"After receiving our transaction request, Abrams Bank knows the person we want to remit to, Bank X, and will also issue a $100 million transfer in the Federal Reserve's large-value payment system, Fedwire. Transaction request, to a Federal Reserve System member bank near Bank X, that is, a bank capable of using the Fedwire system, let's say Bank Z."

At this time, a large circle representing Fedwire appeared in the middle of four boxes on both sides.

"You know all the member banks of the Federal Reserve System have a reserve account with the Federal Reserve System? If Abrams has a million balance in the reserve account, or a little bit less, it doesn't matter, this transaction will be completed. Fedwire The system will transfer the money in the reserve account of Abrams Bank to Bank Z in real time, and then Bank Z will transfer the money to the account of Bank X."

"In this process, we are the issuing bank, that is, we are the initial link to initiate the transaction, and the acquiring bank is Bank X, which is the bank that will finally receive the $100 million payment. Abrams Bank and Bank Z It is the intermediary bank, which is responsible for helping us transfer funds. The Federal Reserve, as the largest settlement institution, helps both parties complete the clearing and settlement in the middle.”

"But it's not over here. The 100 million US dollars is still in our bank account. But Abrams Bank has actually reduced the 100 million US dollars at this time, so at this time, we have a debt $100 million in debt to Abrams Bank."

"This debt will be settled by the Georgia Interbank Clearing House on the liquidation day, and the settlement will be supervised. That is, on this day, we need to confirm the debt and transfer the 100 million US dollars in our bank to Abra James Bank, which completes the entire funds transfer process."

"I understand, which means that if we can now use the settlement services provided by the Federal Reserve, we can greatly save these intermediate bank processes and handling fees, right?"

After figuring out the operation process, Carter immediately understood the convenience of this regulation.

A transfer involves two intermediary banks and three settlement institutions (the Federal Reserve, the clearing house where the issuing bank is located, and the clearing house where the acquiring bank is located), and the handling fee in the middle is charged five times!In addition to the handling fees of the acquiring bank and the issuing bank, after 7 handling fees, a sum of money will be transferred to the place, and it is not bad to have 100 left over 99 million.
Not only is it bad for customers, but it is also troublesome for banks.Especially the issuing bank and the acquiring bank, they don't actually receive much handling fee, and most of it is given to the main intermediary bank, that is, the Abrams Bank in the example just now.Because they have really advanced the funds for you, so you can't justify not paying more interest.

And with this offer, the customer may have emotions.After all, these operations belong to the bank's behind-the-scenes operating process, which is a process that is generally not seen by customers.From the perspective of the issuing bank, it is reasonable and reasonable to give higher toll and handling fees to the main intermediary bank.But if you stand on the customer's point of view.
Your bank didn't do any shit, and you charged me so much money!Isn't it just typing a few times on the keyboard, or transferring money? It feels like I haven't put in any labor at all. You have to charge me so much money for no reason, you are greedy! !
"That's right, if we can use the nss service, it will indeed be much more convenient for us. However, the bank's fixed operating costs will increase. Look at this fee, the annual fee. To be honest, it's a bit high. Before Abrams Bank they There is basically no fee or very little fee to use the Fedwire system."

"It's easy to say, only one of our banks pays for the use. Forest Bank will not pay. If necessary, just take the money from us. It's all my bank, and you don't have to trouble the clearing house when the time comes. Doing a settlement with Mr. William can save a settlement fee. In this way, I spent one price and bought back two enjoyments."

Comparing the Fed's fixed fee with the previous transfer fee, Carter found that even so, he would not be able to make a profit.After all, for small local banks like them, there is not much demand for large-amount fund transfers. If there is no large demand to pay themselves handling fees, then the fixed annual fee is actually a bit of a loss.

This change is somewhat similar to the underwriting system becoming an underwriting system.It turns out that if you need it, you pay for it, and then transfer the money. The single charge is high, but there is no fixed expenditure.Now, there is a fixed expenditure every year, and then the handling fee is collected, which is your own profit.As for how much handling fee you can charge, and whether you can use the handling fee to recoup your capital, that is your own business.
"By the way, if we settle between Black Bank and Forest Bank, do we need to use a third party? Even if we also set up a settlement agency or something, doesn't the bill say that private institutions are allowed to open settlement business?"

"It's not really necessary. I'll settle the settlement directly with Manager William. Although they are two institutions, speaking of them, Forest Bank is more like our branch. In this case, it is actually an internal settlement. There is no need for additional Get a settlement agency. It’s just that in the future, if you have more banks under your umbrella, then we will set up a settlement center internally to handle these businesses.”

(End of this chapter)