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The Impact of Operational Events on the Network Structure of the LVTS

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  • Tom Roberts

Abstract

The author uses a quantitative network analysis approach to assess how participants in the Large Value Transfer System (LVTS) respond to partial outages at other banks. Despite the limited number of operational events, benchmarks can be established. For example, the effect of a partial outage at a big six bank that has a net payment balance of $1 billion is estimated to correspond to a decline in connectivity of about 6 or 7 per cent, due to other participants not sending payments to the problem participant. This suggests that participants tend to perceive a partial outage at a counterparty as inconvenient enough to warrant a delaying of payments, at least to the problem participant. There is no strong evidence of systemic effects, whereby participants also delay payments to non-problem counterparties, in an effort to maintain a reasonable liquidity position. Notable events mostly occurred in 2004 or 2005, and the incidence of operational events did not increase over the sample period. The improvement of contingency measures, such as the use of the LVTS Direct Network, possibly contributed in this regard.

Suggested Citation

  • Tom Roberts, 2011. "The Impact of Operational Events on the Network Structure of the LVTS," Discussion Papers 11-7, Bank of Canada.
  • Handle: RePEc:bca:bocadp:11-7
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    References listed on IDEAS

    as
    1. Blundell,Richard & Newey,Whitney K. & Persson,Torsten (ed.), 2006. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521871525, January.
    2. Blundell,Richard & Newey,Whitney K. & Persson,Torsten (ed.), 2006. "Advances in Economics and Econometrics," Cambridge Books, Cambridge University Press, number 9780521692083, January.
    3. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
    4. Mills Jr., David C. & Nesmith, Travis D., 2008. "Risk and concentration in payment and securities settlement systems," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 542-553, April.
    5. 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.
    6. Lana Embree & Tom Roberts, 2009. "Network Analysis and Canada's Large Value Transfer System," Discussion Papers 09-13, Bank of Canada.
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    More about this item

    Keywords

    Payment clearing and settlement systems;

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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