Weird Things I Wonder About
Why do banks close on more holidays than brokerage/investment firms?
Did you ever notice (or care) that banks close for holidays that Wall Street ignores? I care because I spent fifty years in the investment business. Our staff at Lynx Investment Advisory here in Washington DC, would occasionally grumble, trudging to work on days like Columbus Day and Veterans Day when the bank downstairs was closed and the stock market stayed open.
I eventually figured it out.
I spent many years on the board of directors of two commercial banks. That gave me an insight into how banks work and make money. The solution is fairly simple. Banks make money on the spread between the interest rate they pay on deposits, and the higher interest rates they charge on loans. The beauty of this is that banks make money every day of the week since they earn that spread whether they are open or closed. So banks can make money whether they are open for business or not.
What about the investment firms? Brokerage firms do not enjoy the same earning privileges that banks do. Although my firm was not a brokerage firm, we remained open when the stock market was open. On the other hand, brokerage firms lose money when the market is closed. That’s because the lost commissions are never made up. Here’s an example. Suppose the average daily volume on the New York Stock Exchange for a given week is about 300 million shares. If the stock market is closed for a holiday on a Monday, the volume should double on Tuesday to make up for the lost earnings on the day that the market was closed. But it doesn’t. The volume the day after the market is closed for a holiday is usually just about the same as any other day. That means that the business the brokers would have gotten the day the market closed is lost forever and will not be made up.
For this reason, the stock market strenuously resists closing for new holidays unless it has to. And banks don’t mind!
