Settlement delays in the money market
AbstractWe track 38,000 money market trades from execution to delivery and return to provide a first empirical analysis of settlement delays in financial markets. In line with predictions from recent models showing that financial claims are settled strategically, we document a tendency by lenders to delay delivery of loaned funds until the afternoon hours. We find that banks follow a simple strategy to manage the risk of account overdrafts - delaying the settlement of large payments relative to that of small payments. More sophisticated strategies, such as increasing settlement delays when own liquid balances are low and when dealing with small trading partners, play a marginal role. We also find evidence of strategic delay in the return of borrowed funds, although we can explain a smaller fraction of the dispersion in delays in the return than in the delivery leg of money market lending.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 319.
Date of creation: 2008
Date of revision:
Other versions of this item:
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.:
- 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.
- Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-28, February.
- Sheri Markose & Amadeo Alentorn & Stephen Millard & Jing Yang, 2011.
"Designing large value payment systems: An agent-based approach,"
Economics Discussion Papers
700, University of Essex, Department of Economics.
- Jing Yang & Sheri Markose & Amadeo Alentorn, 2005. "Designing large value payment systems: an agent based approach," Computing in Economics and Finance 2005 396, Society for Computational Economics.
- Scott Hendry & Nadja Kamhi, 2007. "Uncollateralized Overnight Loans Settled in LVTS," Working Papers 07-11, Bank of Canada.
- James McAndrews & Samira Rajan, 2000. "The timing and funding of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 17-32.
- Demiralp, Selva & Preslopsky, Brian & Whitesell, William, 2006.
"Overnight interbank loan markets,"
Journal of Economics and Business,
Elsevier, vol. 58(1), pages 67-83.
- Charles M. Kahn & William Roberds, 1996.
"Payment system settlement and bank incentives,"
96-10, Federal Reserve Bank of Atlanta.
- Charles M. Kahn & William Roberds, . "Payment System Settlement and Bank Incentives," Center for Financial Institutions Working Papers 97-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Charles M. Kahn & William Roberds, 1997. "Payment system settlement and bank incentives," Proceedings 537, Federal Reserve Bank of Chicago.
- Leonardo Bartolini & R. Spence Hilton & Alessandro Prati, 2006.
"Money Market Integration,"
IMF Working Papers
06/207, International Monetary Fund.
- Bech, Morten L. & Garratt, Rod, 2001.
"The Intraday Liquidity Management Game,"
University of California at Santa Barbara, Economics Working Paper Series
qt0m6035wg, Department of Economics, UC Santa Barbara.
- Leonardo Bartolini & Svenja Gudell & Spence Hilton & Krista Schwarz, 2005. "Intraday trading in the overnight federal funds market," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Nov.
- Furfine, Craig H, 2001. "Banks as Monitors of Other Banks: Evidence from the Overnight Federal Funds Market," The Journal of Business, University of Chicago Press, vol. 74(1), pages 33-57, January.
- Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-51.
- Olivier Armantier & Jeffrey Arnold & James McAndrews, 2008. "Changes in the timing distribution of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-112.
- Kotomin, Vladimir & Smith, Stanley D. & Winters, Drew B., 2008. "Preferred habitat for liquidity in international short-term interest rates," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 240-250, February.
- Adam Ashcraft & Hoyt Bleakley, 2006. "On the market discipline of informationally opaque firms: evidence from bank borrowers in the federal funds market," Staff Reports 257, Federal Reserve Bank of New York.
- Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
- Bech , Morten L. & Soramäki, Kimmo, 2001. "Gridlock Resolution in Interbank Payment Systems," Research Discussion Papers 9/2001, Bank of Finland.
- Craig Furfine, 2006. "The Costs and Benefits of Moral Suasion: Evidence from the Rescue of Long-Term Capital Management," The Journal of Business, University of Chicago Press, vol. 79(2), pages 593-622, March.
- Adam B. Ashcraft & Darrell Duffie, 2007. "Systemic Illiquidity in the Federal Funds Market," American Economic Review, American Economic Association, vol. 97(2), pages 221-225, May.
- repec:fth:bfdipa:9/2001 is not listed on IDEAS
- Morten L. Bech & Enghin Atalay, 2008.
"The topology of the federal funds market,"
354, Federal Reserve Bank of New York.
- Bech, Morten L. & Atalay, Enghin, 2010. "The topology of the federal funds market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(22), pages 5223-5246.
- Gara Afonso & Ricardo Lagos, 2012. "An empirical study of trade dynamics in the fed funds market," Staff Reports 550, Federal Reserve Bank of New York.
- Morten L. Bech & Carl T. Bergstrom & Rodney J. Garratt & Martin Rosvall, 2011. "Mapping change in the federal funds market," Staff Reports 507, Federal Reserve Bank of New York.
- Pokutta, Sebastian & Schmaltz, Christian, 2011. "Managing liquidity: Optimal degree of centralization," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 627-638, March.
- Pritsker, Matthew, 2013. "Knightian uncertainty and interbank lending," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 85-105.
- Stephen Quinn & William Roberds, 2010. "How Amsterdam got fiat money," Working Paper 2010-17, Federal Reserve Bank of Atlanta.
- Elizabeth Klee, 2011. "The first line of defense: the discount window during the early stages of the financial crisis," Finance and Economics Discussion Series 2011-23, Board of Governors of the Federal Reserve System (U.S.).
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.