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There Is No Such Thing As "Dormant Funds" In Banking


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this frances person acts as such a big shot know-it-all, meanwhile, check her Linkedin profile. her CV is posted there. hardly impressive. most recently she was a contractor at Royal Bank of Scotland

I try to avoid twitter fights. I'll just hang out over here, satisfied with the fact that she's wrong.

Totally agree with Tinyaccount's response above. xRapid is a near-term solution, designed to onboard organizations to XRP. From there they will transact on-ledger. I also want to point out that t

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5 hours ago, cmbartley said:

She states that nostro accounts are debt instruments, this is relevant becasue Ripple has never acknowledged (as far as I can recall) that nostro accounts are debt instruments. The public pitch for xRapid was that banks have "trillions" laying dormant in nostro accounts and that xRapid reduces/eliminates this dead capital cost. If this is not true it doesn't mean xRapid is useless but it does mean that Ripple has been knowingly untruthful. It seems unlikely that no one would have raised this point publicly (e.g. Swift) before. Also seems unlikely that this point would have been overlooked by all the bank-savy members of xrpchat. The truth may be somewhere in the middle but not being a banker I'd like some clarity. 

I’m not a banker but there seem to be a series of flaws in her story:

- She claims for every nostro account there is equivalent vostro account. I think that’s incorect as transfer corridors are never symmetric; a bank needs wat bigger nostro accounts in countries where there clients want to send money to than comes back. Also she claims they are debts instead of actual funds. The whole idea is the exact opposite; a bank has to have actual funds where it needs those available at any time.

- She claims that banks don't want to have large nostro balances anymore because of low interest rates on those accounts but she later refererences statements  that those balances are on the rise because the big increase of cross border transactions. This IS the whole point; banks don’t WANt them yet the NEED them because there is no other option (yet xRapidto the rescue).

- She claims that nostro capital is not dormant as it is there waiting for a payment to be made. But waiting IS dormant. If I'm stuck daily in a traffic jam I could claim all that time I was 'on the move' but in fact it was a lot of wasted time. Also she claims that it's there for a short time, but that does not fit her claim that banks benefitted significantly from interest given on those funds and that would not be the case if funds are just there for a short time. Sure banks will aim to make them as efficient as possible but in the end, there IS capital locked overseas during the year.

- She mentions the banks' exposure to fx risk if they would use XRP. But the whole idea that fx risks can be avoided as a bank does not have to prefund nostro's anymore and leaves the fx risk to their client who wants to make a payment at that very moment (with transparent rates at that very moment and the client has the choice to cancel if he does not agree on the given rates).

- To wrap up a note that, as already mentioned in this thread, focussing on the USD/EUR corridor throughout the article seems off topic as it is generally known that Ripple is not aiming at that (already liquid / balanced) corridor to make the difference (at this moment). Ripple is primary aiming on other ones or even series of them through multihop features. It would serve her readers if people get that broad picture and context instead of making her point on the wrong corridor and even framing Ripples usecase to circumvent sanctions. She is coloured and clearly wants to disprove Ripple’s usecase. Which is good to keep people sharp. But No worries here ;).

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52 minutes ago, automatic said:

[Sibos 2017]...first they laugh at you.... [Davos / Paris Fintech 2019]...then they fight you... then ____________

Free cookie for anyone who can complete that sentence!

bake at 350 for 8 to 12 minutes? 

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47 minutes ago, Amigo said:

I’m not a banker but there seem to be a series of flaws in her story:

- She claims for every nostro account there is equivalent vostro account.

...

- She mentions the banks' exposure to fx risk if they would use XRP. 

...

Let's break down the terms "nostro account" and "vostro account". A nostro account and a vostro account actually refer to the same entity but from a different perspective. For example, Bank X has an account with Bank Y in Bank Y's home currency. To Bank X, that is a nostro, meaning "our account on your books," while to Bank Y, it is a vostro, meaning "your account on our books."

So for the above reason the claim just states the obvious, though doesn't add anything to the debate regarding the need for pre-funded bank accounts.

The argument wrt to the exposure of banks to FX risk has been countered very convincingly by Brad onstage with the SWIFT CEO. While it is still true for now that the volatility of XRP is larger than the volatility of many FIAT currencies, the period of TIME of exposure is significantly smaller. While a SWIFT transaction can take several days, a transaction on the XRPL takes just a few seconds and even an xRapid transaction takes less than a few minutes. So from a mathematical perspective this claim is also moot. 

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17 minutes ago, Zerp_Legend said:

Of course there are dormant funds. 

Also, powerful banks benefit a lot from correspodent banking. With xrp small banks from all over the world will have more power/options to send money. Ripple is actually decentralizing the banking system.

True, so maybe it's a good idea to keep that in mind when reading dubious or even false and malicious information online ... it's not only BTC maximalists who might have interests spreading FUD ...

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Agree with many of your points @Amigo. The one thing I haven't had time to look into much is whether nostro accounts are actually debt instruments. I'd never heard that and it would change things a bit. 

I agree that the speed of XRP limits fx risk and her comment about nostros not being dormant fails the logic test. 

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“It is processes within correspondent banks that take the time and raise the cost. Partly, this is due to regulatory requirements such as KYC/ALM checks and timezone differences. But it is also because correspondent banks themselves are clunky and inefficient.”

That is the fundamental question that Ripple / XRP will solve, Mrs. Coppola ...:)

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5 hours ago, Rey said:

Let's break down the terms "nostro account" and "vostro account". A nostro account and a vostro account actually refer to the same entity but from a different perspective. For example, Bank X has an account with Bank Y in Bank Y's home currency. To Bank X, that is a nostro, meaning "our account on your books," while to Bank Y, it is a vostro, meaning "your account on our books."

So for the above reason the claim just states the obvious, though doesn't add anything to the debate regarding the need for pre-funded bank accounts.

The argument wrt to the exposure of banks to FX risk has been countered very convincingly by Brad onstage with the SWIFT CEO. While it is still true for now that the volatility of XRP is larger than the volatility of many FIAT currencies, the period of TIME of exposure is significantly smaller. While a SWIFT transaction can take several days, a transaction on the XRPL takes just a few seconds and even an xRapid transaction takes less than a few minutes. So from a mathematical perspective this claim is also moot. 

When we talk about n/vostro accounts, I think we are forgetting one major factor, that's TRUST. When banks establish n/vostro relationships, they are bound to trust the counter party, one reason why current correspondence banking is ineffective on certain corridors. It's also time consuming, hence expensive to establish these relationships.

Second part is the FX risk, while this exists during the transaction its is also constantly existing risk for banks to hold foreign currencies that are influenced by political and economical forces...

Ripple's solution addresses both of the issues related to n/vostro accounts by enabling any RippleNet member to transact trustlessy between each other's when settled via xRapid while removing the need of foreign currency exposure, trust and excess paperwork. Heck, multihop even allows non-RippleNet banks to benefit from this.

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When Brad was on stage sitting next to the SWIFT CEO  the other day and he mentioned capital tied up in nostro vostro accounts for the umpteenth time in the last year or two, why didn't the SWIFT CEO point out the error in his thinking and instead nod along? Why hasn't anyone ever picked up on this fundamental error, on any occasion when he's mentioned this in a live setting?

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