[88913527]

Couldn't having payments settle so quickly result in increased risk of overall system instability? I don't have a specific example, but I'm thinking of things like bank run panics. I'm sure this sort of thing would have been considered, however.

[HoyaSaxa]

Yes, it absolutely does increase the overall system instability. However, that is at great benefit to the consumer. There are some safeguards in place in the actual FedNow Service, but it is primarily up to the Service Providers to give the financial institutions tools to manage risk. This includes features like liquidity management, circuit breakers, fraud/compliance monitoring, limits, etc.

[Narkov]

You must remember, the US is very late to the "instant" payment party. This isn't a groundbreaking development.

[supertrope]

Faster settlement can also have stabilizing effects. With less money in transit there's less counter-party risk. Annoying rules like having to wait 10 bank days to spend money from a larger check you deposited can go away. The whole point of a checking account is liquidity.

[jowea]

Good question. Did that happen in any other country with faster payments? And SVB collapsed fast before this.

[rodgerd]

Singapore has had extremely aggressive settlement (and availability!) requirements for a while now, and doesn't seem to have collapsed.

[astrange]

Part of the reason SVB collapsed is they couldn't get paid by government insurance fast enough IIRC.

[delfinom]

SVB largely did not qualify for any government protections beyond the FDIC limits. The bailout we gave them was shameful.

[jowea]

I'm not sure if that's what the previous poster was referring to, but before SVB officially collapsed it tried to get an emergency loan but failed because the system for such emergency loans is slower than the systems its clients could use to transfer money out.

> And yet! Man! What the heck! A lot has been written about how SVB was a bank run for a speedier, modern age. Instead of hearing a rumor at the coffee shop and running down to the bank branch to wait on line to withdraw your money, now you can hear a rumor on Twitter or the group chat and use an app to withdraw money instantly. A tech-friendly bank with a highly digitally connected set of depositors can lose 25% of its deposits in hours, which did not seem conceivable in previous eras of bank runs. But the other part of the problem is that, while depositors can panic faster and banks can give them their money faster, the lender-of-last-resort system on which all of this relies is still stuck in a slower, more leisurely era. “When the user interface improves faster than the core system, it means customers can act faster than the bank can react,” wrote Byrne Hobart. You can panic in an instant and withdraw your money with an app, but the bank can’t get more money without a series of phone calls and test trades that can only happen during regular business hours. And so sometimes a bank that theoretically has a lot of liquidity can just run out of cash.

https://www.bloomberg.com/opinion/articles/2023-03-22/silico...

[astrange]

There are no limits and no such thing as qualifying for them. Amounts above 250k are up to FDIC discretion.

Anyway, I'm not talking about FDIC.