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The Impact of Unanticipated Defaults in Canada's Large Value Transfer System

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  • Darcey McVanel

Abstract

Canada's Large Value Transfer System (LVTS) is designed to meet international risk-proofing standards at a minimum cost to participants in terms of collateral requirements. It does so, in part, through collateralized risk-sharing arrangements whereby participants may incur losses if another participant defaults. The LVTS is designed to be robust to defaults. Its rules, however, do not ensure that individual participants are robust to defaults. The author studies participants' robustness to default empirically by creating unanticipated defaults in LVTS, and finds that all participants are able to withstand their loss allocations that result from the largest defaults she can create using actual LVTS data.

Suggested Citation

  • Darcey McVanel, 2005. "The Impact of Unanticipated Defaults in Canada's Large Value Transfer System," Staff Working Papers 05-25, Bank of Canada.
    • Handle: RePEc:bca:bocawp:05-25
    DOI: 10.34989/swp-2005-25
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Elisabeth Ledrut, 2007. "Simulating retaliation in payment systems: Can banks control their exposure to a failing participant?," DNB Working Papers 133, Netherlands Central Bank, Research Department.
    2. Ronald Heijmans, 2009. "Simulations in the Dutch interbank payment system: A sensitivity analysis," DNB Working Papers 199, Netherlands Central Bank, Research Department.
    3. Anneke Kosse & Zhentong Lu, . "Transmission of cyber risk through the Canadian wholesale payment system," Journal of Financial Market Infrastructures, Journal of Financial Market Infrastructures.
    4. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Staff Working Papers 07-28, Bank of Canada.
    5. Sean O'Connor & James Chapman & Kirby Millar, 2008. "Liquidity Efficiency and Distribution in the LVTS: Non-Neutrality of System Changes under Network Asymmetry," Discussion Papers 08-11, Bank of Canada.
    6. repec:nsb:wpaper:20 is not listed on IDEAS
    7. Aleksandar Dimitrijevic & Milan Nikolic & Miro Vukoje, 2012. "Analysis of the Payment System of the National Bank of Serbia – simulation-based approach," Working papers 20, National Bank of Serbia.

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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