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Liquidity-saving mechanisms in collateral-based RTGS payment systems

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  • Jurgilas, Marius

    () (Bank of England)

  • Martin, Antoine

    () (Federal Reserve Bank of New York)

Abstract

This paper studies banks’ incentives regarding the timing of payment submissions in a collateral-based RTGS payment system and how these incentives change with the introduction of a liquidity-saving mechanism (LSM). We show that an LSM allows banks to economise on collateral while also providing incentives to submit payments earlier. This is because in our model an LSM allows payments to be matched and offset in real time without any or very minimal funds. Under a collateral-based RTGS payment system, introduction of the LSM always improves welfare. The result contrasts with earlier work, which shows that under a fee-based RTGS system, the introduction of an LSM in some circumstances may reduce welfare.

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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 389.

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Length: 49 pages
Date of creation: 01 Jun 2010
Date of revision:
Handle: RePEc:boe:boeewp:0389

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Keywords: liquidity-saving mechanism; intraday liquidity; payments;

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Cited by:
  1. Clara Machado & Carlos León & Miguel Sarmiento & Freddy Cepeda, 2011. "Riesgo Sistémico Y Estabilidad Del Sistema De Pagos De Alto Valor En Colombia: Análisis Bajo Topología De Redes Y Simulación De Pagos," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.

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