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Does SIC need a heart pacemaker?

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  • Robert Oleschak
  • Thomas Nellen

Abstract

Real-time gross settlement (RTGS) systems effect final settlement of payments continuously and on an individual basis. This generates a trade-off between liquidity needs and settlement delay. Against the background of reconstruction discussions, the paper analyses whether more advanced algorithms reduce liquidity needs and settlement delay if applied to the Swiss Interbank Clearing (SIC) system. Simulations run with the BoF-PSS2 simulator show that expected reductions in liquidity needs and settlement delay are modest and should carefully be evaluated against costs. More advanced settlement algorithms improve settlement efficiency only if payment release behaviour is highly aligned.

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File URL: http://www.snb.ch/n/mmr/reference/working_paper_2013_10/source/working_paper_2013_10.n.pdf
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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2013-10.

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Length: 41 pages
Date of creation: 2013
Date of revision:
Handle: RePEc:snb:snbwpa:2013-10

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Keywords: payment system; simulation; payment splitting; liquidity-saving mechanisms;

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References

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  1. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
  2. Sébastien Kraenzlin & Thomas Nellen, 2010. "Daytime Is Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1689-1702, December.
  3. Morten L. Bech & Bart Hobijn, 2007. "Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 147-181, September.
  4. Martin, Antoine & McAndrews, James, 2008. "Liquidity-saving mechanisms," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 554-567, April.
  5. Guntzer, Michael M. & Jungnickel, Dieter & Leclerc, Matthias, 1998. "Efficient algorithms for the clearing of interbank payments," European Journal of Operational Research, Elsevier, vol. 106(1), pages 212-219, April.
  6. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  7. 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.
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