The firms quietly moving billions around the banking industry each day
It is a nightmarish task for a poor human shuffler, but a trivial one for the whizzy algorithms that govern the business of managing “reciprocal deposits”, in which a bank places deposits with another and receives the same value back, via a few mostly unknown technology firms. These quiet giants of financial plumbing reallocate enormous amounts of deposits. Around $1trn-worth are reshuffled through the platforms, of which about a fifth are swapped in reciprocal arrangements.
Those seeking more protection would once have had to plod from bank to bank themselves. If an institution wanted to offer greater deposit insurance by placing deposits elsewhere it would have had to forgo using the deposit as funding. But in 2002 the idea for reciprocal deposits was invented by Eugene Ludwig, who previously ran the Office of the Comptroller of the Currency, a regulator.
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