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The impact of payment splitting on liquidity requirements in RTGS

Author

Listed:
  • Edward Denbee

    (Bank of England)

  • Ben Norman

    (Bank of England)

Abstract

This paper examines the impact that payment splitting could have upon the liquidity requirements and efficiency of a large-value payment system, such as the United Kingdom’s CHAPS. Using the Bank of Finland Payment and Settlement Simulator and real UK payments data we find that payment splitting could reduce the liquidity required to settle payments. The reduction in required liquidity would increase as the payment splitting threshold decreased but the relationship is non-linear. Liquidity savings are not homogeneously distributed, with some banks benefiting more than others.

Suggested Citation

  • Edward Denbee & Ben Norman, 2010. "The impact of payment splitting on liquidity requirements in RTGS," Bank of England Staff Working Paper series 404, Bank of England.
    • Handle: RePEc:boe:boeewp:0404
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    References listed on IDEAS

    as
    1. 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.
    2. Christopher Becher & Marco Galbiati & Merxe Tudela, 2008. "The timing and funding of CHAPS sterling payments," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 113-133.
    3. Kurt Johnson & James J. McAndrews & Kimmo Soramaki, 2004. "Economizing on liquidity with deferred settlement mechanisms," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-72.
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    Cited by:

    1. Ben Norman, 2010. "Financial Stability Paper No 7: Liquidity Saving in Real-Time Gross Settlement Systems - an Overview," Bank of England Financial Stability Papers 7, Bank of England.
    2. Alexandrova-Kabadjova Biliana & Solís-Robleda Francisco, 2013. "Managing Intraday Liquidity: The Mexican Experience," Working Papers 2013-01, Banco de México.
    3. Robert Oleschak & Thomas Nellen, 2013. "Does SIC need a heart pacemaker?," Working Papers 2013-10, Swiss National Bank.
    4. Jonnathan Cáceres Santos & René Aldazosa Inchauste, 2013. "Analizando el riesgo sistémico en Bolivia: una aplicación de modelos de topología de redes y simulación al funcionamiento del Sistema de Pagos de Alto Valor," Revista de Análisis del BCB, Banco Central de Bolivia, vol. 17(2(2012)-1), pages 45-80, January.
    5. Hellqvist, Matti & Laine, Tatu (ed.), 2012. "Diagnostics for the financial markets: computational studies of payment system: Simulator Seminar Proceedings 2009-2011," Bank of Finland Scientific Monographs, Bank of Finland, volume 0, number sm2012_045, December.

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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Systems; Standards; Regimes; Government and the Monetary System

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