Credit extensions to banks using the Fedwire Funds Service-the Federal Reserve's real-time gross settlement (RTGS) payments system-can reach intraday peaks as high as $86 billion. This article evaluates the effectiveness of alternative methods of settling Fedwire payments in reducing intraday credit extensions. The authors simulate three deferred settlement mechanisms that complement RTGS systems: one-hour netting, six-hour netting, and a mechanism called a receipt-reactive gross settlement (RRGS) system. Their results suggest that in conjunction with RTGS systems, the RRGS mechanism could significantly reduce daylight credit extensions while modestly delaying the average time of payment settlement. Moreover, certain features of RRGS systems may encourage banks to submit payments earlier in the day. Further research on RRGS systems may shed light on whether they could prove to be a true liquidity-saving complement to real-time gross settlement systems.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)