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I was told by an economics teacher once that banks take advantage of the weekend being closed to deposit on hand cash in foreign banks, specifically Mexican and South American banks. The lending bank would then receive high interest rate for that short period of time but their funds were unsecured. The primary reason they do this was that banks could make a higher yield than what they pay out themselves. The teacher made it sound like this is a common practice but I'm having trouble finding information about it.

closed as off-topic by Chris W. Rea, Nathan L, JoeTaxpayer Jun 25 '15 at 20:37

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    I've never heard of such a thing, but it doesn't make a lot of sense to me. Most banks make money on the cash deposits by lending it out to other customers in the form of car and house loans where they can get a pretty decent rate of return with not all that much risk. – JohnFx Jul 28 '11 at 20:48
  • If this is an actual practice, I don't see how it would work. If most banks only operate during business days, what's the use? (If a tree falls in the woods, but no one is there to hear it, does it make a sound?) That is what purpose would it serve to the borrowing institution? How would this be different from the overnight market? – George Marian Jul 29 '11 at 1:13
  • I'm not sure about commercial banks but the FED lends money to foreign banks all the time....to the tune of trillions of dollars: edfriendly.blogspot.com/2011/04/… – Muro Jul 29 '11 at 1:24
  • @muro I believe the crux of the question is the potentially higher risk lending of the money while it is "locked up." I actually came across the discount window article while looking for something on short-term, inter-bank lending (overnight market). – George Marian Jul 29 '11 at 5:23
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    Seriously doubt that they lend cash to anyone, particularly banks outside the country. Just the logistics of picking it up after close on Friday (payday for many people), crossing the border with it in both directions, then returning it before open on Monday morning would be infeasible. There could be ways for banks to make interest while they're closed, possibly sending money electronically to follow the sun, but they definitely need it back by morning. – Crispy Aug 3 '11 at 19:16
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Most of your money doesn't exist as physical cash, but simply as numbers in a ledger. At any given time, banks expect their clients to withdraw a certain percentage of their balances... For instance, checking accounts are frequently drawn down to zero, savings accounts might be emptied once our twice a year, CDs are almost never withdrawn, etc.

To cover those withdrawals, banks keep a certain amount of physical cash on hand, and an additional amount remains on the ledgers. The rest gets loaned out to their customers for use in buying homes, cars, credit cards,etc. Anything they can't loan out directly gets deposited with the federal reserve or loaned directly to other institutions who need it. However, those last two options tend to be short term (ie overnight) loans.

With debit cards functioning 24/7, you could get cash at an atm or make a purchase anytime of the day our night. The weekend has nothing to do with it.

Which is a long way of saying "No, they do it all the time, not just on weekends" ;)

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You might be thinking of the Overnight market/Overnight Rate. This lending happens constantly.

  • Yes. Foreign banks are just closed on the weekends as US banks, but (especially in Asia) it's daytime during the US night. – RonJohn Jun 7 at 22:20

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