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Liquidity-saving mechanisms in collateral-based RTGS payment systems

  • Marius Jurgilas

    ()

  • Antoine Martin

    ()

This paper studies banks’ incentives regarding the timing of payment submissions in a collateral-based RTGS payment system and how these incentives change with the introduction of a liquidity-saving mechanism (LSM). We show that an LSM allows banks to economise on collateral while also providing incentives to submit payments earlier. This is because in our model an LSM allows payments to be matched and offset in real time without any or very minimal funds. Under a collateral-based RTGS payment system, introduction of the LSM always improves welfare. The result contrasts with earlier work, which shows that under a fee-based RTGS system, the introduction of an LSM in some circumstances may reduce welfare. Copyright Springer-Verlag 2013

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File URL: http://hdl.handle.net/10.1007/s10436-010-0160-8
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Article provided by Springer in its journal Annals of Finance.

Volume (Year): 9 (2013)
Issue (Month): 1 (February)
Pages: 29-60

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Handle: RePEc:kap:annfin:v:9:y:2013:i:1:p:29-60
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=112370

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  1. Galbiati, Marco & Soramaki, Kimmo, 2010. "Liquidity-saving mechanisms and bank behaviour," Bank of England working papers 400, Bank of England.
  2. Enghin Atalay & Antoine Martin & James McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York.
  3. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
  4. 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.
  5. Bech, Morten L. & Garratt, Rod, 2001. "The Intraday Liquidity Management Game," University of California at Santa Barbara, Economics Working Paper Series qt0m6035wg, Department of Economics, UC Santa Barbara.
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