Contagion and Efficiency in Gross and Net Interbank Payment Systems

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Contagion and Efficiency in Gross and Net Interbank Payment Systems

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Xavier Freixas ()
Bruno Parigi

Abstract

The increased fragility of the banking industry has generated growing concern about the risks associated with the payment systems. Although in most industrial countries different interbank payment systems coexist, little is really known about their propierties in terms of risk and efficiency. We tackle this question by comparing the two main types of payment systems, gross and net, in a framework where uncertainty arises from several sources: the time of consumption, the location of consumption and the return on investment. Payments across locations can be made either by directly transferrring liquidity or by transferring claims against the bank in the other location. The two mechanism are interpreted as the gross and net settlement systems in interbank payments. We characterize the equilibria in the two systems and identify the trade-off in terms of safety and efficiency.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 176.

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Date of creation: Mar 1996
Date of revision: Jun 1996
Handle: RePEc:upf:upfgen:176

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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Charles M. Kahn & William Roberds, 1997. "Payment system settlement and bank incentives," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 104-117.
Other versions:
- Charles M. Kahn & William Roberds, 1996. "Payment system settlement and bank incentives," Working Paper 96-10, Federal Reserve Bank of Atlanta. [Downloadable!]
- 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. [Downloadable!]
- Kahn, Charles M & Roberds, William, 1998. "Payment System Settlement and Bank Incentives," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 11(4), pages 845-70.
Charles M. Kahn & William Roberds, 1998. "On the role of bank coalitions in the provision of liquidity," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 206-225.
Angelini, P. & Giannini, C., 1993. "On the Economics of Interbank Payment Systems," Papers 193, Banca Italia - Servizio di Studi.
V.V. Chari & Ravi Jagannathan, 1984. "Banking Panics," Discussion Papers 618, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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)
McAndrews James J. & Roberds William, 1995. "Banks, Payments, and Coordination," Journal of Financial Intermediation, Elsevier, vol. 4(4), pages 305-327, October. [Downloadable!] (restricted)
Other versions:
- James J. McAndrews & William Roberds, 1994. "Banks, payments, and coordination," Working Papers 94-20, Federal Reserve Bank of Philadelphia.
- James McAndrews & William Roberds, 1994. "Banks, payments, and coordination," Working Paper 94-14, Federal Reserve Bank of Atlanta.

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(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.)

Mallick, Indrajit, 2004. "Strategic Allocation of Liquidity in the InterBank Money Market," MPRA Paper 15427, University Library of Munich, Germany. [Downloadable!]

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