Thursday, December 28, 2006

Follow-up Thought on Gerald Ford's funeral

by Ken Houghton

Currently, the celebration in Washington, D.C. is scheduled for Tuesday, January 2nd.

However, that cannot be a national holiday without violating the one remaining tenet of Glass-Steagall: banks may not be closed for four consecutive calendar days.

UPDATE: The e-mail we got says that the Fed will be closed, but the regional banks will be open.

Instinctively, I would call this a recipe for disaster. No discount window, strange settlement practices (we got the e-mail after noon today, which may mean spot settlement was Tuesday but became Wednesday), even stranger Repo and derivative contract activities.

I couldn't work for this administration; I don't have the imagination to be able to create such a potential cf without worrying about it.
Caveat: i don't know the first thing about banking. Spot settlement, to me, sounds like what happens when you leave your kid's grass-stained pants in the hamper for too long. But...

Does it matter that some banks are open Saturdays for investor deposits and withdrawals? I know this doesn't resolve the backstage banker-speak issues you identified, but if the purpose of the GS act was to allow investors access to their money (insert bank run scene from It's a Wonderful Life here), then one could argue that a Tuesday closure doesn't yet break the spirit of the prohibition on 4-day closures.
Theoretically, it doesn't. (Memory check: Is any bank you know that is open on Saturday closed on the day after Thanksgiving? Didn't think so.)

Also, keep in mind that transactions made on a Saturday are not credited until the Next Business Day (generally Monday; later for holidays). U.S. banks don't officially conduct any transactions on Saturday, nor is it counted as a Business Day for clearing checks.

In part, this is because the Fed is closed, as it apparently will be on Tuesday. So you can't borrow Federal funds, or from the discount window.

It gets more interesting since Friday was the last day of the year; any window-dressing transactions (yes, I know the market is efficient and wouldn't do any such thing; I gave at the office, too) may well skew some accounting. (One hopes it won't be material.)
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