20 Mar 2013

How the US financial system processes at least $15 trillion every day

My thanks to Susy for pointing me towards a remarkable 39 page document that the New York Federal Reserve published in March 2012. It's called "Intraday Liquidity Flows" and was produced by the Federal Reserve's Payments Risk Committee which "contacted and gathered  information from seventeen firms that provide utility services for the U.S. financial system and from operations within two banks that provide certain specialized securities clearing services." "The PRC asked for hourly statistics on intraday flows of USD for “normal” days and for the peak day during the 4th quarter of 2010. "

Here's the list of the various actors.

And here is how the different actors work together.

This is how the volumes of transfers break down between the different components.

The Gross Value of the Payment Transactions was almost $15 trillion per day, and those transactions involved net transfers of over $9 trillion. Here are the numbers plotted in chart form so that you can see where the activity is occuring. You can see that the largest sector is Government Securities Clearing, involving FedWire, Clearing Banks and the FICC which handles over $7.6 trillion every day.

Impressive numbers.  Anyone out there doubting that applying a Financial Transaction Tax to these massive flows of funds? With $15 trillion a day, and at least 250 trading days a year, it is clear that there are at least $3.75 quadrillion being handled every year.

But even this number is certainly seriously underestimated. For example, as I noted in a previous post, the Chicago Mercantile Exchange Group (CME) was boasting that it handled over $1 quadrillion in 2011  - but that number doesn't seem to appear anywhere in the Federal Reserve's analysis. This fits with the little asterisk that you can see in the figure which notes that "Information is not available or de minimis for some CCPs and CSDs". The "CCPs" include the CME group, but also ICE Clear Credit, LCH.Clearnet and the Options Clearing Corporation. The CSDs include Euroclear and ClearStream, neither of which were under any real obligation to hand over their full figures to the Fed.

My guess is that the  $5.5 quadrillion figure that I gave previously may be a minimum. It could be a lot higher.

And of course, the Fed would have to do this sort of excercise continually if we wanted to know what the current numbers are. We already know that the figures in 2011 were substantially higher than the period in 2010 that was used for the Fed's analysis. It's anyone's guess how much these numbers will have increased in 2012.

As I have said repeatedly, the US government could scrap business taxes, income taxes and sales taxes completely, and replace the whole lot by a tax on the $3.75 quadrillion (minimum) in payments of well under 0.1%. Why don't they do it? 


  1. I love the idea. Thank you for sharing all this knowledge. I thought one issue could be accounting for all financial transactions... but then realized it has to be done anyway!
    I cannot understand why some simple ideas, like this one are not implemented.
    Humans sometimes bury simple things in such complexity, the confuse anyone else. On purpose or for stupidity?

  2. Thanks Eugenio. As you will see from my post today there are some players, like SwapClear, who are proud to announce that they processed $2.37 trillion in transactions in a single day... and they provide the numbers in real time. And then there are others like OCC who only reveal that they did over 4 billion transactions last year, without providing the value of those transactions.

    First step - require all the players to provide full details of the transactions. Second step - work out what FTT rate would be necessary to abolish income taxes, business taxes and sales taxes. Third step - ask the financial markets why we have to pay 20% VAT and 20-50% Income tax to allow the traders to do their quadrillions of transactions for free....