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A Model of Tiered Settlement Networks

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  • James Chapman
  • Jonathan Chiu
  • Miguel Molico

Abstract

This paper develops a model of settlement system to study the endogenous structure of settlement networks, and the welfare consequences of clearing agent failure. The equilibrium degree of tiering is endogenously determined by the cost structure and the information structure. The degree of tiering is decreasing in the fixed cost of operating the second-tier network and the availability of public credit history. Furthermore, the welfare effects of clearing agent failure can be decomposed into operational inefficiency and the loss of private information.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2010/02/wp08-12.pdf
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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 08-12.

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Length: 43 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:bca:bocawp:08-12

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Related research

Keywords: Payment; clearing; and settlement systems;

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References

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  1. James T. E. Chapman & Antoine Martin, 2007. "Rediscounting Under Aggregate Risk with Moral Hazard," Working Papers 07-51, Bank of Canada.
  2. Alexandra Lai & Nikil Chande & Sean O'Connor, 2006. "Credit in a Tiered Payments System," Working Papers 06-36, Bank of Canada.
  3. William Roberds & Charles M. Kahn, 2004. "Payments Settlement under Limited Enforcement: Private versus Public Systems," Econometric Society 2004 North American Winter Meetings 13, Econometric Society.
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Citations

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Cited by:
  1. Adams, Mark & Galbiati, Marco & Giansante, Simone, 2010. "Liquidity costs and tiering in large-value payment systems," Bank of England working papers 399, Bank of England.
  2. Robert Arculus & Jennifer Hancock & Greg Moran, 2012. "The Impact of Payment System Design on Tiering Incentives," RBA Research Discussion Papers rdp2012-06, Reserve Bank of Australia.
  3. Hiroshi Fujiki, 2013. "Policy Measures to Alleviate Foreign Currency Liquidity Shortages under Aggregate Risk with Moral Hazard," The Japanese Economic Review, Japanese Economic Association, vol. 64(4), pages 504-536, December.
  4. Jason Allen & Ali Horta├žsu & Jakub Kastl, 2011. "Analyzing Default Risk and Liquidity Demand during a Financial Crisis: The Case of Canada," Working Papers 11-17, Bank of Canada.

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