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Risk control measures in payment systems

  • Callado-Muñoz, Francisco José

The purpose of this paper is to make a comparative analysis of modern gross and net payment systems, emphasizing on the implications of the availability of intraday liquidity in the former and of credit limits in the latter. This allows for the comparison of both the effects on social welfare of each of the two systems and the different risk control instruments analyzed. In a numerical exercise, it is shown first, how it would be legitimate for a benevolent authority a preference for a gross system, like Fedwire, over a net system, like EURO1, for relatively high values, although plausible, of risk aversion. Second, as financial development improves, the preference for a net system shifts either to gross systems or, for some countries, to a cohabitation of both settlement modes.

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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 49 (2009)
Issue (Month): 1 (February)
Pages: 1-25

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Handle: RePEc:eee:quaeco:v:49:y:2009:i:1:p:1-25
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  1. Freixas, Xavier & Parigi, Bruno, 1998. "Contagion and Efficiency in Gross and Net Interbank Payment Systems," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 3-31, January.
  2. Charles M. Kahn & William Roberds, 1996. "Payment system settlement and bank incentives," FRB Atlanta Working Paper 96-10, Federal Reserve Bank of Atlanta.
  3. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  4. Freixas, Xavier & Parigi, Bruno M & Rochet, Jean-Charles, 2000. "Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 611-38, August.
  5. Alan Greenspan, 1996. "Remarks on evolving payment system issues," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 689-695.
  6. James J. McAndrews & William Roberds, 1994. "Banks, payments, and coordination," FRB Atlanta Working Paper 94-14, Federal Reserve Bank of Atlanta.
  7. Kahn, Charles M & McAndrews, James & Roberds, William, 2003. " Settlement Risk under Gross and Net Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 591-608, August.
  8. Craig Furfine & Jeff Stehm, 1996. "Analyzing alternative daylight credit policies in real-time gross settlement systems," Proceedings 516, Federal Reserve Bank of Chicago.
  9. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
  10. Allen N. Berger & Diana Hancock & Jeffrey C. Marquardt, 1996. "A framework for analyzing efficiency, risks, costs and innovations in the payments system," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 696-732.
  11. 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.
  12. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  13. Chakravorti, Sujit, 2000. "Analysis of systemic risk in multilateral net settlement systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(1), pages 9-30, January.
  14. Malcolm Edey & Ketil Hviding, 1995. "An Assessment of Financial Reform in OECD Countries," OECD Economics Department Working Papers 154, OECD Publishing.
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