Archive for January, 2010

A Dysfunctional Banking System

Saturday, January 30th, 2010

As the debt-crisis reached its preliminary climax in the fall of 2008, we were promised the collapse of society if the banks were not rescued with public funds. Maybe that’s true, but now is the time to think about building a better banking and money infrastructure.

My personal experience with banks was increased somewhat over the last month, as I tried to wire transfer several thousand dollars from a bank account in Canada to one in Norway. The accounts are both owned by me. They are with large, respected entities in both countries. I have several receipts (thank God) that show that the account number (IBAN), SWIFT code, address, name etc. provided by me are correct.

The money did leave my bank account in Canada a few days after I requested the transfer. So far, so good. The problem is that that was in December 2009. After waiting for a week, I first contacted the sending bank in Canada. They gave me a nice looking “Payment Transmission Confirmation” showing the information I had entered and some other numbers. The transmission showed that the money had left my bank, then gone to an intermediary associated with my bank and had been sent on to Bank X (I know the name, but won’t post it here yet) in Great Britain, with instructions to send it on to my bank.

I gave my receipt to my bank in Norway, but they could not find any funds, not in my name, not to my account, not of that amount, not on that date, etc. Their intermediary is another Norwegian bank, so I tried calling them – no luck. They pointed me to DnB NOR, who is the intermediary they use. DnB NOR was also unable to find the money.

I requested more information from Canada. Another week went by, and all I got was this very detailed spreadsheet-looking SWIFT request from my contact in Canada. The first receipt had some numbers. This one had lots of numbers! I sent it on to my Norwegian bank, who didn’t quite understand it. While it certainly had numbers, it didn’t have the number they wanted (transaction reference number).

At this point, I directed a request for a formal investigation to the originating bank. It’s been a week since then. They are no doubt calling banks down a long chain of intermediaries now. What I know about the trace of my money is this: My Bank in Canada -> Intermediary in Canada -> Intermediary in Great Britain 1 -> Intermediary in Great Britain 2 -> unknown. After the unknown, the final part of the route should be: DnB NOR -> Intermediary in Norway -> My Bank in Norway.

If you think this looks a bit like how the internet (tried traceroute?) works, you’re absolutely right. The only difference is that this process is manual. Yes, you heard it right. What happens at each of these links, is that some peon in the sending bank faxes a document with instructions and numbers on it to the next bank in the path. This is done over a “secure” (physically separate from the normal telecommunications network) wire. (Thus the term wire transfer). Then some peon in the receiving bank will look at the instructions, type the info into their system, and if the destination is not yet reached, fax it on to some other bank. The woman I talked to at DnB NOR even suggested that at some point in the chain, they had failed to find a “path” (translated from Norwegian “sti”) towards the destination! The routing in SWIFT is completely ad-hoc you see.

Whenever you visit a major city (at least in Canada), you can bet that the tallest five buildings are banks (not counting the CN Tower of course). If you’ve ever wondered what the people in those 100-story glass palaces do, now you know: They are full of peons who form the human equivalent of CISCO routers in a giant human version of the internet. In 2010, I believe this meets the definition of Epic Fail. And yes, the banks have ways of making us pay for this largesse!