This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Risk and concentration in payment and securities settlement systems

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
David C. Mills, Jr.
Travis D. Nesmith

Additional information is available for the following registered author(s):

Abstract

Large value payment and securities settlement systems are important components of an economy's financial system. Many such systems are operated by central banks and are liquidity intensive. Central banks often provide inexpensive liquidity to facilitate settlement. This leads to a number of policy questions about the provision of such liquidity. To answer these questions, central banks need to understand what factors influence the timing of settlement. This paper offers a model to better understand intraday patterns of settlement and identifies three factors that influence the timing of settlement: the cost of intraday liquidity, a participant's exposure to settlement risk, and system design. Incorporating all three factors enables our model to explain a number of stylized facts concerning behavior within the Federal Reserve's Fedwire fund and securities systems around a major policy change. In particular, the model captures the different responses of the two systems in both the pattern of settlement and the use of intraday liquidity. The results map out how policy interacts with participants' incentives to influence the use of intraday liquidity and the resultant credit exposure of a central bank. The model, therefore, can inform decision-making at central banks.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.federalreserve.gov/pubs/feds/2007/200762/200762abs.html
File Format: text/html
File Function:
Download Restriction: no
File URL: http://www.federalreserve.gov/pubs/feds/2007/200762/200762pap.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-62.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 2007
Date of revision:
Handle: RePEc:fip:fedgfe:2007-62

Contact details of provider:
Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
Web page: http://www.federalreserve.gov/
More information through EDIRC

Order Information:
Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Banks and banking; Central ; Interbank market ; Clearing of securities;

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
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.:
  1. Heidi Willmann Richards, 1995. "Daylight overdraft fees and the Federal Reserve's payment system risk policy," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 1065-1077.
  2. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March. [Downloadable!] (restricted)
    Other versions:
  3. Kahn, Charles M & McAndrews, James & Roberds, William, 2003. " Settlement Risk under Gross and Net Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 591-608, August.
    Other versions:
  4. Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 853-868, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Antoine Martin & James McAndrews, 2008. "Should there be intraday money markets?," Staff Reports 337, Federal Reserve Bank of New York. [Downloadable!]
  2. Antoine Martin & James McAndrews, 2008. "An economic analysis of liquidity-saving mechanisms," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 25-39. [Downloadable!]
  3. Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 111-142. [Downloadable!]
  4. Enghin Atalay & Antoine Martin & James McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York. [Downloadable!]
  5. Antoine Martin & James McAndrews, 2008. "A study of competing designs for a liquidity-saving mechanism," Staff Reports 336, Federal Reserve Bank of New York. [Downloadable!]
Statistics
Access and download statistics

Did you know? RePEc data is maintained by each archive holder on its own website. Nothing is held centrally.

This page was last updated on 2009-11-18.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.