An economic perspective on the enforcement of credit arrangements: the case of daylight overdrafts in Fedwire
A fundamental concern for any lender is credit risk - the risk that a borrower will fail to fully repay a loan as expected. Thus, lenders want credit arrangements that are designed to compensate them for - and help them effectively manage - this type of risk. In certain situations, central banks engage in credit arrangements as lenders to banks, so they must manage their exposure to credit risk. This article discusses how the Federal Reserve manages its credit risk exposure associated with daylight overdrafts. The authors first present a simple economic framework for thinking about the causes of credit risk and the possible tools that lenders have to help them manage it. They then apply this framework to the Federal Reserve's Payments System Risk policy, which specifies the use of a variety of tools to manage credit risk. The study also analyzes a possible increase in the use of collateral as a credit risk management tool, as presented in a recent proposal by the Federal Reserve concerning changes to the Payments System Risk policy.
Volume (Year): (2008)
Issue (Month): Sep ()
|Contact details of provider:|| Postal: |
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.ny.frb.org/rmaghome/staff_rp/ Email: |
When requesting a correction, please mention this item's handle: RePEc:fip:fednep:y:2008:i:sep:p:161-168: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.