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Analyzing alternative intraday credit policies in real-time gross settlement systems

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  • Craig Furfine
  • Jeff Stehm
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    Abstract

    This paper examines a central bank's choice of intraday credit policy for Real-Time Gross Settlement (RTGS) systems. Formal analysis of central bank objectives and commercial bank payment activity provides insight into both the choice and effects of several possible intraday credit policies. Observed intraday credit policies are interpreted within the context of the model. Among G-10 central banks, different combinations of prices, collateral, and quantity limits have been chosen to manage the supply of intraday credit. Conditions that rationalize these choices are shown to rely on a) central bank preferences regarding credit risk and systemic risk, b) liquidity management technologies, and c) the cost of collateral.

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    File URL: http://www.federalreserve.gov/pubs/feds/1997/199740/199740abs.html
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    File URL: http://www.federalreserve.gov/pubs/feds/1997/199740/199740pap.pdf
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    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1997-40.

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    Date of creation: 1997
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    Handle: RePEc:fip:fedgfe:1997-40

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    Related research

    Keywords: Clearinghouses (Banking);

    References

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    1. Angelini, P. & Giannini, C., 1993. "On the Economics of Interbank Payment Systems," Papers 193, Banca Italia - Servizio di Studi.
    2. Van Hoose, David D., 1991. "Bank behavior, interest rate determination, and monetary policy in a financial system with an intraday federal funds market," Journal of Banking & Finance, Elsevier, vol. 15(2), pages 343-365, April.
    3. Giannini,C. & Monticelli,C., 1995. "Which Target for Monetary Policy in Stage Three? Issues in the Shaping of the European Payment System," Papers 257, Banca Italia - Servizio di Studi.
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    Cited by:
    1. Leinonen, Harry & Soramäki, Kimmo, 1999. "Optimizing Liquidity Usage and Settlement Speed in Payment Systems," Research Discussion Papers 16/1999, Bank of Finland.
    2. Leinonen, Harry & Soramäki, Kimmo, 2003. "Simulating interbank payment and securities settlement mechanisms with the BoF-PSS2 simulator," Research Discussion Papers 23/2003, Bank of Finland.
    3. Walter Orellana Rocha & Gonzalo Forgues Puccio, 2001. "Algunas consideraciones sobre el Sistema de Pagos en Bolivia," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 4(2), pages 57-98, December.

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