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Settlement bank behaviour and throughput rules in an RTGS payment system with collateralised intraday credit

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  • Simon Buckle
  • Erin Campbell

Abstract

A simple two-period, two-bank model of an RTGS system with collateralised intraday credit is presented. It is shown that two types of outcome are possible - inefficient or efficient - depending on whether banks care about payments imbalances between them in the first period. If they do, banks delay payments to each other, increasing their aggregate liquidity requirements. It is argued that efficiency is not guaranteed even when banks face repeated interaction in a real payment system, largely because of imperfect information and the competitive dynamics of the payment industry. An efficient outcome can be achieved by the imposition of throughput rules on the value of payments banks must make by a certain deadline. These can both reduce aggregate liquidity requirements and increase the contestability of the payments market, encouraging a higher degree of direct access to payment systems. Throughput rules could therefore also have risk-reduction benefits if they help to reduce the level of tiering in the financial system. The detailed characteristics of these rules are shown to be important, and a number of design issues are addressed, such as how frequently requirements should be set, and whether throughput rules should apply on an aggregate or bilateral basis.

Suggested Citation

  • Simon Buckle & Erin Campbell, 2003. "Settlement bank behaviour and throughput rules in an RTGS payment system with collateralised intraday credit," Bank of England working papers 209, Bank of England.
  • Handle: RePEc:boe:boeewp:209
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    File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/2003/wp209.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Leinonen, Harry (ed.), 2009. "Simulation analyses and stress testing of payment networks," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2009_042.
    2. Galbiati, Marco & Soramäki, Kimmo, 2011. "An agent-based model of payment systems," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 859-875, June.
    3. De Caux, Robert & Brede, Markus & McGroarty, Frank, 2016. "Payment prioritisation and liquidity risk in collateralised interbank payment systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 139-150.
    4. Leinonen, Harry, 2009. "Simulation analyses and stress testing of payment networks," Scientific Monographs, Bank of Finland, number 2009_042.
    5. Schulz, Christian, 2011. "Liquidity requirements and payment delays - participant type dependent preferences," Working Paper Series 1291, European Central Bank.
    6. repec:zbw:bofism:2009_042 is not listed on IDEAS
    7. B. Craig & D. Salakhova & M. Saldias, 2018. "Payments delay: propagation and punishment," Working papers 671, Banque de France.
    8. Cronin, David, 2011. "Large-Value Payment System Design and Risk Management," Quarterly Bulletin Articles, Central Bank of Ireland, pages 78-88, January.
    9. Sinelnikova-Muryleva, Elena (Синельников-Мурылева, Елена), 2018. "Analysis of the Consequences of the Development of Payment Systems for Monetary Policy in the Context of Deepening Financial Markets [Анализ Последствий Развития Платежных Систем Для Денежно-Кредит," Working Papers 031813, Russian Presidential Academy of National Economy and Public Administration.
    10. Christopher Becher & Marco Galbiati & Merxe Tudela, 2008. "The timing and funding of CHAPS sterling payments," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 113-133.
    11. Ball, Alan & Denbee, Edward & Manning, Mark & Wetherilt, Anne, 2011. "Financial Stability Paper No 11: Intraday Liquidity - Risk and Regulation," Bank of England Financial Stability Papers 11, Bank of England.
    12. Constanza Martínez & Freddy Cepeda, 2015. "Reaction Functions of the Participants in Colombia’s Large-value Payment System," Borradores de Economia 875, Banco de la Republica de Colombia.
    13. Tomohiro Ota, 2016. "Sequential payments and optimal pricing in payment systems," Annals of Finance, Springer, vol. 12(3), pages 441-463, December.
    14. Nellen, Thomas, 2019. "Intraday liquidity facilities, late settlement fee and coordination," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 124-131.
    15. Norman, Ben, 2010. "Financial Stability Paper No 7: Liquidity Saving in Real-Time Gross Settlement Systems - an Overview," Bank of England Financial Stability Papers 7, Bank of England.
    16. Kei Imakubo & Yutaka Soejima, 2010. "The Microstructure of Japan's Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 28, pages 151-180, November.

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