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Comment by pzone | Hacker News Reader

Err.... no, banks definitely do not "inherently trust each other." Not when the incentive to misrepresent your position is so high. They use very expensive record keeping and clearinghouse arrangements (often involving quite a lot of physical paper) that in theory could be cheaper to do with a distributed ledger.

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Yes, there's no 100% trust of course, but the banks, merchants and general population trust other banks more than they would trust some random entities or bitcoin exchanges for example.

There are of course reasons for that, the major ones being the shared (and regulated) clearing system you're referring to (which I'm assuming this "bitcoin alternative" is aiming to replace) and then there's the fact that these are accredited financial institutions with reasonable controls in place to keep them honest.

In a hypothetical scenario where credit card authorization succeeds (meaning that the issuing bank is guaranteeing the funds to the merchant), merchant ships the goods but the funds don't make it to their account on the merchant bank side because the issuing bank "misrepresented the position" - if the issuing bank gets caught doing this they'll be in all sorts of trouble.

It's not that just about having an inherent distrust of one another. When they do have a dispute, it is necessary to have very good documentation to bring to court. Legally doing a mediocre job with keeping records is barely better than not keeping records at all. So they end up spending a lot to mind their p's and q's, even though they do have a good amount of trust.

With a blockchain it becomes cheap to add a layer of ex-post verifiable mutual agreement between mostly-trusted parties.

I'm all for a blockchain (or ripple or whatever) type solution replacing today's antiquated setup.

My point however is that I highly doubt that it's the trust issues between financial institutions that is the primary driving force behind this implementation.

> They use very expensive record keeping and clearinghouse arrangements (often involving quite a lot of physical paper) that in theory could be cheaper to do with a distributed ledger.

Do you have some quantifiable facts or sources to back this up?

If I'm going to repeat it I want to be certain of it.

Here is a report by Santander with a rough estimate of $15-20 billion in savings per year by switching from conventional records to distributed ledgers. Scroll to the end of the pdf.

http://santanderinnoventures.com/fintech2/

If blockchains can reduce the non-fractional funds that banks have to fully reserve and keep at other various banks to facilitate and settle transfers by even a few % the savings might be even higher, especially once you actually start getting ROI on that money that you can invest now.

That's not even taking into account the ransom banks pay for correspondent / agency banking and for SWIFT and the likes.

As well as the cost of liability of invalid/bad transfers, and banks oddly enough still "lose" money all the time, some of it is later recovered but virtually every time banks do account consolidation the books don't add up.

Well as banks switch over to this we can certainly expect to see our transaction and transfer fees fall...

Transfers may become faster too.

Hahahahahahaha

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