Financial systems take a holiday

Patrick McKenzie (patio11)
Financial systems take a holiday

All systems reflect the culture they are created in, in ways great and small. The financial system, and the human and computer systems which compose it, have inherited norms about when work is performed from the diverse societies which built (and build) financial systems.

Your bank takes holidays. Your conception of a holiday is materially informed by when banks are closed. No system of importance can be accurately described without the context of the culture that created it and no culture can be accurately described without the context of the systems embedded in it. Neither is chicken; neither is egg.

Cultural commentary aside, this has material consequences. The app in your pocket that moves money gets less useful during holidays and on weekends.

This sometimes occasions gnashing of teeth. Many people and businesses find it inconvenient when financial systems are down. It also seems unnecessary. Financial systems are inseparably computer systems. Most similarly important computer systems don’t take holidays. Google doesn’t take holidays… or doesn’t seem to, from the perspective of a typical user, at any rate.

Technologists describe their systems as having “uptime” and measure it in “nines”, such as “We have five nines of uptime”, which means that a system has 99.999% uptime or, equivalently, about five minutes of downtime per year. Five nines is admirable in many circumstances and would be considered disastrously below expectations for e.g. Google Search.

Nonetheless, many financial systems do have availability which is far closer to five twos. They aren’t fully open for business during holidays, weekends, or outside of business hours. It turns out that “holidays”, “weekends”, and “business hours” are far deeper topics than one might think.

As always: while I previously worked at Stripe, and am an advisor to it, it does not necessarily endorse any commentary I make. Illustrations of engineering reality made below are for color purposes and taken from general industry knowledge rather than private knowledge of particular design documents for specific systems at any firm.

What is a holiday, anyway?

A holiday is any day you and your counterparty mutually agree is a holiday.

This is often an implicit agreement via Schelling points. No serious person disputes that Christmas Day is a holiday in the United States and accordingly no one needs to ask if Christmas Day is a holiday. (Many salarymen in Japan work on Christmas Day, of course, despite their coworkers Taro [1] and Patrick skipping work to... go to a Jewish friend’s birthday party or something. Taro and Patrick are, of course, eccentric.)

If I can pre-answer a poindextery observation: yes, I am aware that some people work on holidays. That is why we describe that as “working on a holiday” as opposed to “working.” The distinction often has material consequences.

For example: one of a million things dooming government payroll system modernization projects is that they require—and universally fail to budget for— substantial bespoke work by historians to figure out e.g. which set of documents is the controlling authority with respect to what overtime rate applies to meter maids in Chicago on Good Friday. Holidays can be broadly understood every-child-knows-this facts but they can also be contentious sites of explicit negotiation.

You might sensibly say “Ahh yes, but legal holidays or federal government holidays or banking holidays are not simply agreements, formal or informal, not in any way that matters. Those are… facts about society. They’re real and legible.”

I am a sometimes technologist. I predict that many non-specialists would have conversations with technologists about the nature of calendars, clocks, time zones, and whether time flows forward in a linear fashion and swiftly conclude that the night is dark and full of terrors. [2]

Take banking holidays. You might think there is an authoritative list of days on which bank branches are closed for business. Sure, they are closed by custom, but that list must exist, right? Banking holidays are legible to the banking system, surely!

That list does generally exist.

And so you might conclude “OK, then the holidays bank systems need to know about are the banking holidays. Which you have an exhaustive and authoritative list of. Problem solved.” And what’s that behind you? It’s social and engineering reality, come to destroy our sanity.

Allow me to offer an example: Company Foundation Day. Company Foundation Day is a holiday for many Japanese salarymen. Japan has a public holiday, National Foundation Day (国立記念日), every year on February 11th. It was established by order of the Cabinet more than 50 years ago. Many Japanese companies, including some which predate the issuance of that order, have a high degree of regard for their corporate history. So Company Foundation Day is a holiday, too.

What day was the company founded? It depends on the company [3]. You will be unsurprised that Company Foundation Day is whenever a company says it is.

“Charming bit of salaryman trivia, Patrick, but what does this have to do with banking holidays?”

Well, you see, Japanese banks are Japanese companies. And so if you are a Japanese bank, it is very possible that some of your human and computer systems are, by your custom and practice, given a day of rest on a day on a day when most Japanese salarymen are working.

Now it gets worse. If you are a bank or other bit of financial infrastructure which interacts with a Japanese bank, congratulations, you now observe the Company Foundation Day of your counterparty with respect to some (probably relatively small) set of your operations.

What does that "observation" mean? It means whatever you agreed it means, which could be "Of course if you attempt to call your account representative on a holiday that call may be returned on the next business day." or "Of course if you or your computer system electronically communicates updated KYC information on a holiday our computer system will inform your computer system the KYC information has been accepted. 'Accepted' has a very specific meaning here. No action will be taken until the following business day, unless you also call or fax Operations to inform them of an emergency necessitating intervention on a holiday."

To promote the subtext to text: not all banks/etc which interact with Japanese banks are themselves well-informed about the culture that is Japanese salarymen. (The culture that is Japanese salaryman is often misunderstood to be coextensive with Japanese culture. There is no one single Japanese salaryman culture, though "salaryman" is useful shorthand for a cultural cluster. Reports of Japanese culture being a monolith are greatly exaggerated internally and externally. Sugimoto's Introduction to Japanese Society is a good text on this, if a bit dry.)

Now clearly your Japanese counterparty would not choose to surprise you with the fact of Company Foundation Day. Japan is considered exotic by many people, but it is a functioning democratic and capitalist society. Work does not constantly grind to a halt as salarymen are ambushed by other companies’ Company Foundation Day. No, salarymen do the sensible thing. They wrote this down. Flip to page 636 of the Operations Manual under the heading Observed Holidays. Look right there, in the middle of the list, exactly where a Japanese salaryman would expect to find his counterparty’s Company Foundation Day.

Four panel Anakin/Padme meme which makes an ironic observation about likelihood Operations Manual was read.

Now, suppose you are a large company. To ensure that your systems reflect reality, your technologists very likely have created some formal system which tracks holidays. The first time you do business with a Japanese counterparty, one of them will add a list of Japanese banking holidays to the system, and another will check the work. Perhaps the list added will be sourced from a data provider, like e.g. Bloomberg. Perhaps it will be gathered by looking at Google Calendar’s list or a Wikipedia article. Perhaps your technologists, being careful, will say neither of those is good enough, and will attempt to find an authoritative list of holidays in a publication of the government.

Different companies will adopt different strategies. Guess which holiday none of the above data sources will mention. But it is definitely a holiday because it has all the consequences of being a holiday.

Not only will one soon find oneself with substantial egg on one’s face, one will very often have to organize one’s engineering team to quickly redefine how one’s systems understand holidays worldwide in response to the incident this fact pattern will create. Because, yes, some holidays exist only per-company, and if your financial institution is sophisticated, a computer querying whether it is a holiday or not on a particular day probably passes the jurisdiction of interest but probably does not pass the counterparty of interest when doing the lookup.

Now you could, at this point, throw your hands up in the air and say "Other people's culture is not my problem! This is a quirky edge case upon an edge case! Begone!" Goodness knows you would not be the first technologist to say that. But—and this is extremely not legal advice—Compliance has a definite point of view on whether you are allowed to intentionally build a KYC system which could, given your company's positive knowledge that it has accidentally moved money for a terrorist in the past and is in the process of doing so at the present moment, inform its financial parters about the terrorist tomorrow. Compliance also has a definite point of view on the wisdom of writing down that one considers a particular foreign nation a Nice To Have, really, on the list of nations where one has addressed one's domestic-to-you responsibilities and routinely follows the domestic-to-them law.

Fun operational consequences of holidays

Holidays as observed often are used to extend weekends, for both operational and social purposes.

If a holiday is defined as a fixed date on the calendar, it will periodically fall on a weekend, and in many nations many organizations will add an “as observed” day which is not that fixed date which expands the weekend.

Many holidays are, of course, not on fixed dates, but change every year. Why do you think we send you a new Operations Manual every year. Did you think we think you lost the old one. We have much higher regard for you than that.

Easter is March 31st in 2024. Try explaining why it is March 31st this year and not a date in April to a Chinese banker not familiar with Judaism. (If one objects that Easter is not a Jewish holiday, one should not attempt to explain the timing of Easter to a Chinese banker, or anyone else really. If one objects “Easter on which side of which schism?”, one has a good understanding of the challenges here.)

Anyhow, however they are scheduled, holidays routinely cause long weekends to happen.

Long weekends have consequences in the material world. Human activity does not stop during weekends or on holidays. Certain human activity that the financial system cares about keenly, such as consumer payments to businesses for goods and services, predictably explodes on or around certain holidays.

Take Black Friday / Cyber Monday. (BFCM, in some quarters.)

When is Black Friday? The day after Thanksgiving. When is Thanksgiving? Whenever Americans think it is. Many Americans think it is the 4th Thursday in November. But Thanksgiving is so inextricably bound with the American commercial calendar that the reason Americans celebrate it on the 4th Thanksgiving was because previously we had multiple Thanksgivings and this caused operational problems for retailers.

Why is Black Friday? Because Americans, by well-established custom, get two holidays for Thanksgiving. By well-established custom, they typically spend Thanksgiving with family. Then, the day after, while they are not expected to work, they often attempt to get an early start on shopping for Christmas presents. Retailers have long since adapted to this phenomenon, throwing special promotions to juice sales on Black Friday. Retailers not participating in Black Friday lost share of wallet as customers spent their holiday budgets at ones that did.

This has thoroughly enshrined Black Friday in the practice of many retailers, including in Japan. In Japan, a certain large e-commerce company you may have heard of instructed teams to appropriately celebrate the holiday. Japanese people do not typically celebrate Thanksgiving, and Japan consumes very little turkey, but Japanese salarymen given an order by their boss are socialized to comply with the utmost diligence and peformative enthusiasm even when that order has a puzzling basis (or no basis at all, for that matter).

The salarymen did the natural thing: they organized a special promotion on—I swear on my honor as a salaryman, may my fax toner dry out forever if I lie— items which are black. It worked very well.

And so, by ancient custom, some extremely large Japanese companies celebrate Black Friday, the day after the 4th Thursday in November, the day where people of good will come together to buy black things at attractive prices.

This is all fascinating for people who work in retail or e-commerce. For financial systems, an interesting knock-on consequence of it is that you will have a sudden, predictable-as-the-sun-rising transaction surge on Black Friday, smack dab in the middle of a four day period during which money is not moving. We will return to that in a moment.

Money starts moving again on Monday. Cyber Monday.

Why is Cyber Monday? It commemorates a perhaps apocryphal meeting between very different peoples, not infrequently in conflict but fundamentally joined with each other, and their decision to bond over a universal human experience: shopping. 

Cyber Monday also causes a transaction surge. The more indexed a financial institution is to e-commerce companies relative to non-retailing or not-very-online companies, the larger a transaction surge they will see. As time goes to infinity the Internet economy will be called “the economy”, but time is very far from infinity yet, and so different firms have differential exposure to “cyber.” [4]

Now let’s ignore the sociology and marketing considerations and focus simply on the operational mechanics: a staggering volume of purchases went through, over a variety of payment systems with very different legal and technical substrates, during a period in which the banking system mostly does not move money between companies.

Payments companies (and others) owe performance to their customers as defined by contracts, negotiations, market norms, promises, implicit understandings, and similar. And sometimes there is a mismatch between what is expected and what can be easily delivered.

This problem presents in fractal detail at many firms. Let’s simplify it for the purpose of illustration.

If you have promised your customer “I will pay out your sales on the next business day” and an underlying “rail” [5] takes two business days to pay you, you have a one-day mismatch. Your promise “consumes float.” [6] There are many, many ways you can deal with this in the ordinary course of business, and they all round to “constantly advance customers a bit of our own money.”

Why do you do that? Many financial institutions insulate their customers from complexity and risk because that is the service the financial industry offers to society. We (the financial industry) teleport value through time and across space and make this look easy. We (every user of every financial system, inclusive of you and me) pay for that.

Complexity and risk are, like matter and energy, conserved within the system. Moving them from individual businesses to financial providers lets the providers deal with them efficiently for usual specialization-of-labor and comparative advantage reasons. 

Anyhow, once a year, extremely predictable in timing but not necessarily in magnitude, you do not need to float one day of sales, like you do daily. You do not need to float three days, like most weekends. You need to float five-ish days including the largest sale day of the year. And you whisper fervent prayers that all the wires you expect arrive exactly when you expect them.

What are those wire sized like? I mean, in this sketch of issues that affect a large universe of companies differently, it could vary considerably. Let your imagination run wild.

Black Friday would be a bad day for hitches principally because you don’t want to break for customers on a very important day for them. Cyber Monday would be a bad day for hitches for that reason, too, but also because an entirely different kind of breakage at an entirely different company would hit you like a freight train.

And since you’re aware of that, maybe hundreds of people have spent the last few weeks diligently wargaming out the BFCM scenarios and writing contingency plans. Maybe you also carefully modeled BFCM float needs with finance. Maybe you also did pedestrian but real capital markets work to make sure that you could survive another company having an unfortunately timed operational stumble.

Tryptophan makes us do strange things, after all.

"This is crazy. Let’s get rid of holidays."

The culture that is heavily-online technologists is extremely frustrated with systems which go down on a predictable schedule.

Cryptocurrency enthusiasts in particular enjoy distributed systems that are constantly up and have no single points of failure. For example, you could have every actor in the financial markets open accounts at a single bank. Why would you do that? Well, most trades involve one leg that never sleeps (blockchains, an industry term for slow databases) and one leg which implicates money (which largely exists on fast databases operated by organizations that do have sleep schedules and holidays). Convince one bank to give you an internal API to make book transfers and now money moves 24/7. And just for redundancy, we’ll use two banks. Checkmate, TradFi.

Less sardonically, there is a lesson here: systems which intermediate between cultures are useful. Intermediating between cultures is a thing the world urgently needs and is extremely prepared to pay for. Systems which intermediate between cultures will frequently need to cross a gap between operating schedules. You cannot simply wish away that gap. You cannot simply assert that the one true operating schedule is 24/7.

That certainly doesn’t stop technologists from trying. If you want to drive one batty, ask about the IRS applications which have office hours (example).

There is, believe it or not, an engineering reason for some applications to have office hours, which you’ll see in multiple places in the U.S. government. Generally: the application interfaces with a legacy system which ultimately depends on choices made back during the mainframe era. During that era, computer operators could run programs in interactive mode, with an operator at the keyboard, or in batch mode. To avoid impacting the operators of the system (i.e. regular employees doing their day-to-day jobs), batches were designed to be run at night. And so they have been run at night for many, many decades.

Now, here’s the rub: we don’t know if the interactive mode programs, like say looking up the status of a tax refund, are safe to run while the batches are running. [7] So we continue previous practice and don’t allow the interactive mode programs to run while the batch programs are running. It would be a very, very bad thing if the software which in a very real way is the United States of America suddenly developed data integrity issues because someone hooked a web application to it. The technologists (and managers) in charge of those systems are terrified of e.g. data integrity issues when e.g. sending out Social Security payments because the consequences of that would include e.g. food riots in Kansas.

But that is more an explanation of an infelicity rather than an argument that there is actually a positive consequence of holidays. There is.

Would you believe that banks intentionally cause misaligned operating schedules? It is an important tool to detect and discourage particular forms of fraud.

A particular terrifying genre of fraud is perpetrated by insiders with advanced knowledge of a financial institution’s back office procedures. A teenager with moral flexibility can cheat you out of a pair of sneakers. A professionalized fraud operation based in a non-extradition country can rob you for millions. But a single insider who understands your back office reasonably well can bring down a bank or cause billions of losses. Barrings and Daiwa in ‘95. Société Générale in ‘08. UBS in ‘11. [8]

A very old control for this sort of thing is forcing holidays, with the goal that the set of staff engaged in a conspiracy don’t have a sufficient number of conspirators at the keyboard in all the right places on all the right days the conspiracy needs to operate to be undetected.

A financial CEO who sleeps at the office on a beanbag chair might be commendably devoted to his work. But it is no slur against devoted CEOs to say that their companies and their customers would be well-served by them not being allowed to do that. Take the day off. Let someone cover for you. "Cover" in the sense of "handle your work while you are at rest", not in the sense of "cover up" a hole in the balance sheet. Nobody expects that there is a hole in the balance sheet. And since there is not a hole in the balance sheet, a fellow responsible professional who has an enormous personal and professional regard for you will, applying math and procedures in the usual fashion, receive a balance sheet from you when you leave and give an updated one to you when you return. Perfectly balanced as all things should be. No need to snap.

If we didn’t have holidays, we’d have been forced to invent them. We accept degraded performance (very useful humans: not at keyboard!) as an organizational chaos monkey to shake out far more serious issues.

Does it work? Well, there exist financial institutions that haven’t been reduced to smoking craters by insider fraud, so that is a point in its favor. And, like all controls, this one operates in a constellation (different controls reinforce each other) and on a portfolio basis (you win some and you lose some but are judged on how they net rather than judged on absence of losers).

Will this change?

In an increasingly interconnected world where decisions are increasingly made by people who count and value nines, you can reasonably expect financial systems to partially close the gap between historical practice and contemporary practice of e.g. Google Search.

As I said before: cultures create systems and systems create cultures. Both systems and cultures change over time. The rate of change in infrastructure specifically is much lower than the rate of change we observe in e.g. fashion. But infrastructure does change. Credit cards were invented in a world where Chicago and Los Angeles were considered to be socially distant from each other, to allow Chicagoans in L.A. to enjoy the same trust they would enjoy in Chicago. Cultural change, real observable change with consequences, is not something that can only be measured on generational timescales.

But should one expect the financial system to operate constantly? Not only should you not expect that, that is not even a coherent thing to expect. The financial system is an interconnected web of individual organizations which contain systems which contain some combination of subsystems etc etc etc and at some level depends on individual people to whom complex sociocultural promises have been made and who have biological need for sleep.

And those people, for the foreseeable future, will continue to periodically rest and continue to periodically celebrate just like they continue to work on the behalf of the societies their financial systems support.


[1] While Taro is quite a popular name in Japan, Taro is also the usual analog to the John in John Doe. Jane Doe is frequently rendered as Hanako. When you find them in a particular company's documentation, their family name will frequently be the name of the company, which is delightful for readers of Japanese corporate documentation who are also cyberpunk fans. (This includes many writers of Japanese corporate documentation.)

[2] The Red Priestess Melisandre could not be reached for comment on whether the Lord of Light's theology encompasses computer systems.

[3] Serious paperwork connoisseurs know that "It depends" is a deep rabbit hole here, including in the United States. Was the day a company founded the day the founders started working on a project or the day they mutually agreed it should be a company or the day they signed a contract with each other or the day they submitted paperwork to the state of Delaware or the day Delaware declared that paperwork was accepted? Yes. The fact that the day the company was founded and the day the company was founded are frequently months apart is not even a tiny bit weird.

[4] Readers of a certain age might sensibly ask what “cyber” means. Consider it a way to gesture broadly at technology used almost exclusively by people who both do not understand technology and feel some amount of pride in that. Teams at large retailers, believing online commerce was doomed to be a tiny sideline like catalogs and only worth tens of billions of dollars, were involved in naming Cyber Monday. The other place you’re likely to hear it frequently is American national security circles, which exist in a superposition of understanding that technology can certainly be used to kill people and break things while also believing that it’s not a real way to kill people and break things if it is the sort of technology built by people who look like pre-juice Steve Rogers.

[5] "Financial rails" are the legal, technical, and organizational infrastructure which allows one to move money around. That's a mouthful; "rails" is one syllable and also communicates "I believe I understand this; you don't need to explain to me that money doesn't actually move when we move money." An illustrative usage: "Did that transaction go over ACH rails?" "No, it was on us."

[6] Positive float is the characteristic that you enjoy the legitimate but temporary use of other people's money as a consequence of their business dealings with you not specifically intended to cause that. The classic example is in the insurance industry, where insurers might get a few years to sit on premiums before paying them back out. Negative float is the opposite condition, where others get to use your money. Negative float isn't bad. It will cause you to incur a cost of doing business, like labor and rent are a cost of doing business, in the service of providing a valuable service to customers at a reasonable price.

[7] To spare you a long digression into the joys of government system architecture documents, accept this sketch: the IRS' web applications are frequently impersonating a human operator with preternaturally good typing skills.

[8] Yes, this is a reference to Margin Call, the best movie about finance ever made. The scene it references isn't even in the best five scenes of a single character (a bank CEO played by Jeremy Irons in what might be the best work of a distinguished career).

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