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Changes in the timing distribution of Fedwire funds transfers


  • Olivier Armantier
  • Jeffrey Arnold
  • James J. McAndrews


The Federal Reserve's Fedwire funds transfer service - the biggest large-value payments system in the United States - has long displayed a peak of activity in the late afternoon. Theory suggests that the concentration of late-afternoon Fedwire activity reflects coordination among participating banks to reduce liquidity costs, delay costs, and credit risk; as these costs and risk change over time, payment timing most likely will be affected. This article seeks to quantify how the changing environment in which Fedwire operates has affected the timing of payment value transferred within the system between 1998 and 2006. It finds that the peak of the timing distribution has become more concentrated, has shifted to later in the day, and has actually divided into two peaks. The authors suggest that these trends can be explained by a rise in the value of payments transferred over Fedwire, the settlement patterns of the private settlement institutions that use the system, and an increase in industry concentration. Although the study's results provide no specific evidence of heightened operational risk attributable to activity occurring later in the day, they point to a high level of interaction between Fedwire and private settlement institutions.

Suggested Citation

  • Olivier Armantier & Jeffrey Arnold & James J. McAndrews, 2008. "Changes in the timing distribution of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 83-112.
  • Handle: RePEc:fip:fednep:y:2008:i:sep:p:83-112:n:v.14no.2

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    References listed on IDEAS

    1. Angelini, Paolo, 2000. "Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 54-73, February.
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    5. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
    6. Beyeler, Walter E. & Glass, Robert J. & Bech, Morten L. & Soramäki, Kimmo, 2007. "Congestion and cascades in payment systems," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 384(2), pages 693-718.
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    Cited by:

    1. Biliana Alexandrova-Kabadjova & Francisco Solís-Robleda, 2012. "The Mexican Experience in How the Settlement of Large Payments is Performed in the Presence of a High Volume of Small Payments," Working Papers 2012-17, Banco de México.
    2. Gu, Chao & Guzman, Mark & Haslag, Joseph, 2011. "Production, hidden action, and the payment system," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 172-182, March.
    3. Bartolini, Leonardo & Hilton, Spence & McAndrews, James J., 2010. "Settlement delays in the money market," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 934-945, May.
    4. Gara M. Afonso & Hyun Song Shin, 2008. "Systemic risk and liquidity in payment systems," Staff Reports 352, Federal Reserve Bank of New York.
    5. Joaquin Bernal & Freddy Cepeda L. & Fabio Ortega C., 2011. "Cuantificación de la contribución de las fuentes de liquidez en el Sistema de Pagos de Alto Valor en Colombia: una aproximación preliminar," Borradores de Economia 683, Banco de la Republica de Colombia.
    6. McAndrews, James J. & Kroeger, Alexander, 2016. "The payment system benefits of high reserve balances," Staff Reports 779, Federal Reserve Bank of New York.
    7. Merrouche, Ouarda & Schanz, Jochen, 2010. "Banks' intraday liquidity management during operational outages: Theory and evidence from the UK payment system," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 314-323, February.
    8. Ota, Tomohiro, 2011. "Intraday two-part tariff in payment systems," Bank of England working papers 428, Bank of England.
    9. Antoine Martin & James J. McAndrews, 2008. "An economic analysis of liquidity-saving mechanisms," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 25-39.
    10. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    11. Biliana Alexandrova-Kabadjova & Francisco Solís-Robleda, 2013. "Managing Intraday Liquidity: The Mexican Experience," Working Papers 2013-01, Banco de México.
    12. Tomohiro Ota, 2016. "Sequential payments and optimal pricing in payment systems," Annals of Finance, Springer, vol. 12(3), pages 441-463, December.
    13. Maddaloni, Giuseppe, 2015. "Liquidity risk and policy options," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 514-527.
    14. Armantier, Olivier & Copeland, Adam, 2015. "Challenges in identifying interbank loans," Economic Policy Review, Federal Reserve Bank of New York, issue 21-1, pages 1-17.


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