IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Recent developments in intraday liquidity in payment and settlement systems

Listed author(s):
  • Hervo, F.
Registered author(s):

    Alongside consolidation and globalisation of the financial markets, the increase in values exchanged in payment and settlement systems has been remarkable. The size of intraday liquidity requested to expedite settlement of such values is accordingly very significant, especially compared to overnight or longer term liquidity. The increasing use of risk control arrangements in payment and settlement systems (e.g. real-time gross settlement) is typically associated with higher liquidity needs, which have been balanced by the parallel development of several forms of liquidity saving features in systems. The most remarkable developments have affected the qualitative management of intraday liquidity. A clear trend illustrated by continuous linked settlement (CLS) is the shortening of the time horizon in intraday liquidity management. On the “supply” side, intraday liquidity can be provided by central banks or commercial banks, depending on the settlement asset used by systems. Since most central banks extend credit only against collateral, the type of assets that participants can use is an important factor in determining the opportunity costs of intra-day liquidity. In the past decade, most central banks have substantially broadened the range of collateral they accept in their provision of liquidity. Furthermore, an interbank intraday liquidity market seems to start emerging in relation with concentration of correspondent banking activities and funding costs related to critical time windows. Developments affecting intraday liquidity management need to be adequately considered from a financial stability perspective. Liquidity risk profile has changed alongside a variety of factors including consolidation which has led to a concentration of intraday liquidity risk and the development of interdependencies in payment and settlement systems. One lesson to be drawn from the recent period is the usefulness for central banks, to have a list of eligible assets that is diversified enough to address an unexpected increase in collateral demand, in order to mitigate the consequences of a financial turmoil. Over the past decade, the relevant actors, including the banking sector, central banks and the banking supervisors have taken various initiatives to better approach the diverse challenges raised by developments in intraday liquidity. Central bank policy responses encompass the provision of new settlement services which allow to optimize intraday liquidity management of banks (e.g. the new TARGET2 platform), the adaptation of their collateral policy to the new landscape of interdependent payment systems and oversight initiatives to better monitor and address changing risks.

    If 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.

    File URL:
    Download Restriction: no

    Article provided by Banque de France in its journal Financial stability review.

    Volume (Year): (2008)
    Issue (Month): 11 (February)
    Pages: 149-163

    in new window

    Handle: RePEc:bfr:fisrev:2008:11:15
    Contact details of provider: Postal:
    Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS

    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bfr:fisrev:2008:11:15. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael brassart)

    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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.