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Estimating Settlement Risk and the Potential for Contagion in Canada's Automated Clearing Settlement System

  • Carol Ann Northcott

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Paper provided by Bank of Canada in its series Working Papers with number 02-41.

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Length: 51 pages Abstract: Payments systems operate virtually unnoticed in our daily lives and yet are crucial to a wellfunctioning economy and financial system. Because they explicitly link financial institutions, payments systems provide a way to transmit risk within, and between, financial systems. Ideally, payments systems should be designed and operated so as not to add risk in the event of a crisis. The author examines the potential for contagion through linkages arising from the interaction of financial institutions in a Canadian payments system, the Automated Clearing Settlement System (ACSS). A method of measuring risk in the system, given its unique design, is developed and used to estimate contagion over a wide range of conditions. The author finds, first and foremost, that the ACSS has only a limited capacity, if any, to facilitate contagion in the current environment.
Date of creation: 2002
Date of revision:
Handle: RePEc:bca:bocawp:02-41
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  1. Franklin Allen & Douglas Gale, 1998. "Financial Contagion Journal of Political Economy," Center for Financial Institutions Working Papers 98-31, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Xavier Freixas & Bruno M. Parigi & Jean-Charles Rochet, 2000. "Systemic risk, interbank relations, and liquidity provision by the central bank," Proceedings, Federal Reserve Bank of Cleveland, pages 611-640.
  3. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-42, September.
  4. Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 853-868, June.
  5. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
  6. Kuussaari, Harri, 1996. "Systemic Risk in the Finnish Payment System: an Empirical Investigation," Research Discussion Papers 3/1996, Bank of Finland.
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