Comment by 88913527
3 years ago
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.
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.
You must remember, the US is very late to the "instant" payment party. This isn't a groundbreaking development.
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.
Good question. Did that happen in any other country with faster payments? And SVB collapsed fast before this.
Singapore has had extremely aggressive settlement (and availability!) requirements for a while now, and doesn't seem to have collapsed.
Part of the reason SVB collapsed is they couldn't get paid by government insurance fast enough IIRC.
SVB largely did not qualify for any government protections beyond the FDIC limits. The bailout we gave them was shameful.
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