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Risk control measures in payment systems

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  • Callado-Muñoz, Francisco José

Abstract

The purpose of this paper is to make a comparative analysis of modern gross and net payment systems, emphasizing on the implications of the availability of intraday liquidity in the former and of credit limits in the latter. This allows for the comparison of both the effects on social welfare of each of the two systems and the different risk control instruments analyzed. In a numerical exercise, it is shown first, how it would be legitimate for a benevolent authority a preference for a gross system, like Fedwire, over a net system, like EURO1, for relatively high values, although plausible, of risk aversion. Second, as financial development improves, the preference for a net system shifts either to gross systems or, for some countries, to a cohabitation of both settlement modes.

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Bibliographic Info

Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 49 (2009)
Issue (Month): 1 (February)
Pages: 1-25

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Handle: RePEc:eee:quaeco:v:49:y:2009:i:1:p:1-25

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Web page: http://www.elsevier.com/locate/inca/620167

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Keywords: Payment systems Credit Limit Liquidity Intraday credit Contagion;

References

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  1. Xavier Freixas & Bruno Parigi, 1998. "Contagion and efficiency in gross and net interbank payment systems," Proceedings 592, Federal Reserve Bank of Chicago.
  2. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  3. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-38, August.
  4. Charles M. Kahn & James McAndrews & William Roberds, 1999. "Settlement risk under gross and net settlement," Staff Reports 86, Federal Reserve Bank of New York.
  5. Malcolm Edey & Ketil Hviding, 1995. "An Assessment of Financial Reform in OECD Countries," OECD Economics Department Working Papers 154, OECD Publishing.
  6. Charles M. Kahn & William Roberds, 1997. "Payment system settlement and bank incentives," Proceedings 537, Federal Reserve Bank of Chicago.
  7. Alan Greenspan, 1996. "Remarks on evolving payment system issues," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 689-695.
  8. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  9. Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 853-868, June.
  10. Berger, Allen N & Hancock, Diana & Marquardt, Jeffrey C, 1996. "A Framework for Analyzing Efficiency, Risks, Costs, and Innovations in the Payments System," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 696-732, November.
  11. Craig Furfine & Jeff Stehm, 1996. "Analyzing alternative daylight credit policies in real-time gross settlement systems," Proceedings 516, Federal Reserve Bank of Chicago.
  12. McAndrews James J. & Roberds William, 1995. "Banks, Payments, and Coordination," Journal of Financial Intermediation, Elsevier, vol. 4(4), pages 305-327, October.
  13. Chakravorti, Sujit, 2000. "Analysis of systemic risk in multilateral net settlement systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 9-30, January.
  14. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
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