System-wide liquidity risk in the United Kingdom’s large-value payment system: an empirical analysis
AbstractWhen settling their own liabilities and those of their clients, settlement banks rely on incoming payments to fund a part of their outgoing payments. We investigate their behaviour in CHAPS, the United Kingdom’s large-value payment system. Our estimates suggest that in normal times, banks increase their payment outflows when their liquidity is above target and immediately following the receipt of payments. We use these estimates to determine the robustness of this payment system to two hypothetical behavioural changes. In the first, a single bank stops sending payments, perhaps because of an operational problem. In the second, it pays out exactly what it previously received, relying exclusively on the liquidity provided by other system members. Using the observed uncertainty around our estimated behavioural equations, we derive probabilistic statements about the time at which the bank’s counterparties would run out of liquidity if they followed their estimated normal-time behaviour.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 427.
Length: 34 pages
Date of creation: 31 May 2011
Date of revision:
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More information through EDIRC
Payment systems; banks; network models; contagion; systemic risk; liquidity risk;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-11 (All new papers)
- NEP-BAN-2011-06-11 (Banking)
- NEP-CBA-2011-06-11 (Central Banking)
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.:
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"The topology of interbank payment flows,"
Physica A: Statistical Mechanics and its Applications,
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