The timing and funding of CHAPS sterling payments
Real-time gross settlement (RTGS) systems such as CHAPS Sterling require large amounts of liquidity to support payment activity. To meet their liquidity needs, RTGS participants borrow from the central bank or rely on incoming payments from other participants. Both options can prove costly -- the latter in particular if participants delay outgoing payments until incoming ones arrive. This article presents an empirical analysis of the timing and funding of payments in CHAPS. The authors seek to identify the factors driving the intraday profile of payment activity and the extent to which incoming funds are used as a funding source, a process known as liquidity recycling. They show that the level of liquidity recycling in CHAPS is high and stable throughout the day, and attribute this result to several features of the system. First, the settlement of time-critical payments provides liquidity to the system early in the settlement day; this liquidity can be recycled for the funding of less urgent payments. Second, CHAPS throughput guidelines provide a centralised coordination mechanism, in effect limiting any tendency toward payment delay. Third, the relatively small direct membership of CHAPS facilitates coordination between members, for example, through the use of bilateral net sender limits. Coordination encourages banks to maintain a relatively constant flux of payments throughout the day. The authors also argue that the high level of recycling helps to reduce liquidity risk, and that the relatively smooth intraday distribution of payments serves to mitigate operational risk associated with highly concentrated payment activity. They note, however, that the benefits of liquidity recycling are not evenly distributed between members of CHAPS.
Volume (Year): (2008)
Issue (Month): Sep ()
|Contact details of provider:|| Postal: 33 Liberty Street, New York, NY 10045-0001|
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.ny.frb.org/rmaghome/staff_rp/ Email: |
References listed on IDEAS
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.:
- Martin, Antoine & McAndrews, James, 2008.
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 554-567, April.
When requesting a correction, please mention this item's handle: RePEc:fip:fednep:y:2008:i:sep:p:113-133:n:v.14no.2. 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: (Amy Farber)
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.