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The impact of payment splitting on liquidity requirements in RTGS

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  • Denbee, Edward

    ()
    (Bank of England)

  • Norman, Ben

    ()
    (Bank of England)

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    Abstract

    This paper examines the impact that payment splitting could have upon the liquidity requirements and efficiency of a large-value payment system, such as the United Kingdom’s CHAPS. Using the Bank of Finland Payment and Settlement Simulator and real UK payments data we find that payment splitting could reduce the liquidity required to settle payments. The reduction in required liquidity would increase as the payment splitting threshold decreased but the relationship is non-linear. Liquidity savings are not homogeneously distributed, with some banks benefiting more than others.

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    File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2010/wp404.pdf
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    Bibliographic Info

    Paper provided by Bank of England in its series Bank of England working papers with number 404.

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    Length: 35 pages
    Date of creation: 28 Oct 2010
    Date of revision:
    Handle: RePEc:boe:boeewp:0404

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    Related research

    Keywords: Payment systems; simulations; payment splitting; liquidity-saving mechanisms;

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    1. Walter E. Beyeler & Robert J. Glass & Morten L. Bech & Kimmo Soramaki, 2006. "Congestion and cascades in payment systems," Staff Reports 259, Federal Reserve Bank of New York.
    2. Christopher Becher & Marco Galbiati & Merxe Tudela, 2008. "The timing and funding of CHAPS sterling payments," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 113-133.
    3. Kurt Johnson & James J. McAndrews & Kimmo Soramaki, 2004. "Economizing on liquidity with deferred settlement mechanisms," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-72.
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