Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Citi’s $900M Misfire Happened During Software Switch

bloomberg.com

Post reply on HN
Print view View original

41–50 of 55 posts

Re: Citi’s $900M Misfire Happened During Software Switch

#41

Post by yellowstuff »

londons_explore wrote: post #16

I assume financial software has the concept of a set of atomic transactions - ie. "debit bob $X and credit mary $X". Given that, presumably all buttons an operator clicks should generate a set of atomic transactions between customers and the bank. An automated system can then check that the total loss to the bank after these transactions have been executed isn't too big. I can't really imagine how any bit of software…

I don't fully understand what happened, but it sounds like essentially someone was supposed to update a payment from "repay full amount" to "pay interest only", and didn't do it. The system correctly executed the instructions it was given. The only way this would show up as a "loss" to the bank is if some part of the system expected to pay only the interest, and it sounds like that wasn't the case.

It also sounds like there was another human who was supposed to catch the error and didn't. My guess is that the volume of transactions is high enough and errors of this type are rare enough that most people wouldn't be able to catch it manually.

Re: Citi’s $900M Misfire Happened During Software Switch

#42

Post by syndacks »

retube wrote: post #29
howeyc wrote: post #28

Earlier quoted context omitted.

> My question to my boss was rather: "but _where_ do these banks get this huge amount of money from? I guess it's not from the $5 account fees." They create it. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

This is a very misunderstood article. The money they "create", i.e loaned or paid out, has to be funded by a deposit or similar borrowing. Making sure they can fund all their commitments is what liquidity managers and treasury departments do, it's why regulators subject banks to annual ILAAPs (Internal Liquidity Adequacy Assessment Process), it's why banks have liquidity risk and modelling teams to manage any "gap" r…

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

Banks do create money, by loaining other people's. I think you're saying the same thing?

Re: Citi’s $900M Misfire Happened During Software Switch

#43

Post by cosmie »

HenryBemis wrote: post #7
LordAtlas wrote: post #5

This is the key part: "But the employee didn’t select the correct system options -- instead allowing the loan to be repaid in full with interest. Colleagues who are supposed to catch such errors didn’t." Saved you a click.

From experience in investigating mishaps like that: 1) no maker-checker control, 2) no imposed limits (with forced maker-checkers - more than one checker)($900m with one click???? what the actual ....), 3) lack of training, 4a) pressure to do this NOW NOW NOW NOW (sorry for the caps), 4b) overworked/tired (matching point 6 below), if that person is "stuck" at home with two screaming kids aged 2-6 for the past five mo…

> And this is the point, when I browse the "jobs" HN, I NEVER see any on audit/controls/GRC.. as if DevOps are the gods of everythinig and auditors are useless and not needed.. sigh

The roles that get posted to HN are almost exclusively development related or development adjacent (such as PM roles).

If you're not looking for those roles, it tends to not be very helpful directly. But if can be useful to look through, identify companies that appear to be doing interesting things, and then looking up their full job board to see _all_ of the roles they're hiring for.

Re: Citi’s $900M Misfire Happened During Software Switch

#44

Post by stu2b50 »

syndacks wrote: post #42
retube wrote: post #29

Earlier quoted context omitted.

This is a very misunderstood article. The money they "create", i.e loaned or paid out, has to be funded by a deposit or similar borrowing. Making sure they can fund all their commitments is what liquidity managers and treasury departments do, it's why regulators subject banks to annual ILAAPs (Internal Liquidity Adequacy Assessment Process), it's why banks have liquidity risk and modelling teams to manage any "gap" r…

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking Banks do create money, by loaining other people's. I think you're saying the same thing?

That's what he's saying. They do create money effectively by loaning out deposits, but that's far from literally creating money.

If they have a deficit on their sheets they can't just create money for themselves like a central bank could.

Re: Citi’s $900M Misfire Happened During Software Switch

#45

Post by mason55 »

retube wrote: post #29
howeyc wrote: post #28

Earlier quoted context omitted.

> My question to my boss was rather: "but _where_ do these banks get this huge amount of money from? I guess it's not from the $5 account fees." They create it. https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

This is a very misunderstood article. The money they "create", i.e loaned or paid out, has to be funded by a deposit or similar borrowing. Making sure they can fund all their commitments is what liquidity managers and treasury departments do, it's why regulators subject banks to annual ILAAPs (Internal Liquidity Adequacy Assessment Process), it's why banks have liquidity risk and modelling teams to manage any "gap" r…

This is also the root of the overnight repo market that everyone was up in arms about awhile ago.

The bank originates a new loan that they think will be profitable. Then they need to come up with the assets to offset that loan on their balance sheet (or at least a small percentage of it).

From a macro perspective you'd expect some banks to have more assets than they need and some to have less (because if I loan Joe money then eventually it will end up back in a bank somewhere, or at least a percentage of it). Each night the banks that need assets borrow from the banks that have assets and pay a small fee.

Re: Citi’s $900M Misfire Happened During Software Switch

#46

Post by mason55 »

stu2b50 wrote: post #44
syndacks wrote: post #42

Earlier quoted context omitted.

https://en.m.wikipedia.org/wiki/Fractional-reserve_banking Banks do create money, by loaining other people's. I think you're saying the same thing?

That's what he's saying. They do create money effectively by loaning out deposits, but that's far from literally creating money. If they have a deficit on their sheets they can't just create money for themselves like a central bank could.

> They do create money effectively by loaning out deposits

That's what we're taught in school but it's really backwards. They make loans that they think will be profitable and then figure out how to get the reserves needed to cover the balance sheet (either through issuing equity, drumming up more deposits, or borrowing in the overnight repo market).

https://www.investopedia.com/articles/investing/022416/why-b...

A good phrase to search for to learn more is "loans create deposits"

Re: Citi’s $900M Misfire Happened During Software Switch

#47

Post by stu2b50 »

mason55 wrote: post #46
stu2b50 wrote: post #44

Earlier quoted context omitted.

That's what he's saying. They do create money effectively by loaning out deposits, but that's far from literally creating money. If they have a deficit on their sheets they can't just create money for themselves like a central bank could.

> They do create money effectively by loaning out deposits That's what we're taught in school but it's really backwards. They make loans that they think will be profitable and then figure out how to get the reserves needed to cover the balance sheet (either through issuing equity, drumming up more deposits, or borrowing in the overnight repo market). https://www.investopedia.com/articles/investing/022416/why-b... A g…

Sure, their assets are somewhat fungible in both time and space so long as they meet liquidity regulations.

Regardless, the point is that they can't poof money for themselves like the Fed, or another central bank, can. They can increase the economy's supply of money effectively, but that is different from having direct power over monetary supply.

Re: Citi’s $900M Misfire Happened During Software Switch

#48

Post by brooklyndude »

I worked at Citi for a very short time way back when. We were doing some things I thought were a bit “sketchy”, and was wondering if we were breaking the law.

The response from my boss: we’re only breaking the law if we get caught, so theoretically we’re not actually breaking the law since no one has “caught us.”

Guess there was some logic there. Of course this was a very long time ago. And sure they follow those pesky banking rules now , never, ever “breaking the law.”

Re: Citi’s $900M Misfire Happened During Software Switch

#49

Post by sukilot »

zuppy wrote: post #35
netsharc wrote: post #23

Earlier quoted context omitted.

Do you mean when the mortal clients of the banks are doing them, or when the banks are doing them? I imagine bank CEOs know each other and can even call each other and say "Oh sorry old chap, that was a mistake!".

you are reading an article about a case when the bank could not take back its money, I think this answers your question :)

That's because the recipient didn't want to return it.

Re: Citi’s $900M Misfire Happened During Software Switch

#50

Post by sukilot »

massaman wrote: post #22

Somewhere in your company hiring queue is a resume with: Strengths: Architecting risk management systems Weaknesses: Sometimes I click on things to see what happens

Those are both strengths. If Citi had that person they'd have learned from a lot of $1M messes before having a $900M mess.
Post reply on HN