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Settlement finality as a public good in large-value payment systems

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Author Info
David Humphrey (Florida State Yniversity)
Henri Pages (Banque de France)

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Abstract

Target is a real time gross settlement (RTGS) large value payment network operated by European central banks that eliminates systemic risk. Euro1 is a privately operated delayed net settlement (DNS) network that reduces substantially systemic risk but does not eliminate it. This difference makes RTGS networks more expensive to users even if both networks had the same unit operating costs. This provides an incentive for users to shift payments to the more risky network in normal times and back to Target in times of financial market disruption. The estimated extra cost to a DNS network from posting collateral sufficient to cover all exposures (and eliminate systemic risk) is from 15 to 42 cents per transaction. If full cost recovery on an RTGS system were reduced by this amount, user collateral costs — but not risks — would be equalized between networks. Full collateralization on DNS networks would equalize both user costs and risks.

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Publisher Info
Paper provided by EconWPA in its series Public Economics with number 0509003.

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Length: 18 pages
Date of creation: 05 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwppe:0509003

Note: Type of Document - pdf; pages: 18
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Web page: http://129.3.20.41

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Related research
Keywords: payments; settlement; public good;

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Find related papers by JEL classification:
E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

References listed on IDEAS
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    Other versions:
  3. Andreas Schabert, 2005. "Money supply and the implementation of interest rate targets," Working Paper Series 483, European Central Bank. [Downloadable!]
    Other versions:
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    Other versions:
  5. Andrea Ferrero, 2005. "Fiscal and Monetary Rules for a Currency Union," Macroeconomics 0508020, EconWPA. [Downloadable!]
    Other versions:
  6. Michael Ehrmann & Marcel Fratzscher, 2005. "Communication and decision-making by central bank committees - different strategies, same effectiveness?," Working Paper Series 488, European Central Bank. [Downloadable!]
  7. Giovanni Lombardo & Alan Sutherland, 2005. "Computing second-order-accurate solutions for rational expectation models using linear solution methods," Working Paper Series 487, European Central Bank. [Downloadable!]
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  8. Albert Marcet & Juan Pablo Nicolini, 2005. "Money and Prices in Models of Bounded Rationality in High Inflation Economies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 452-479, April. [Downloadable!] (restricted)
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  9. Anna Sanz de Galdeano & Jarkko Turunen, 2005. "Real wages and local unemployment in the euro area," Working Paper Series 471, European Central Bank. [Downloadable!]
  10. Marco Del Negro & Frank Schorfheide, 2005. "Monetary policy analysis with potentially misspecified models," Working Paper Series 475, European Central Bank. [Downloadable!]
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  11. Timothy Cogley & Thomas J. Sargent, 2005. "The conquest of US inflation: Learning and robustness to model uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April. [Downloadable!] (restricted)
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  12. Sawaichiro Kamata, 1990. "Managing risk in Japanese interbank payment systems," Economic Review, Federal Reserve Bank of San Francisco, issue Fall, pages 18-32. [Downloadable!]
  13. Aaron N. Mehrotra & Tuomas A. Peltonen, 2005. "Socio-economic development and fiscal policy - lessons from the cohesion countries for the new member states," Working Paper Series 467, European Central Bank. [Downloadable!]
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Cited by:
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  1. Andrzej Rzonca & Piotr Cizkowicz, 2005. "Non-Keynesian effects of fiscal contraction in new member states," Working Paper Series 519, European Central Bank. [Downloadable!]
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