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The impact of payment splitting on liquidity requirements in RTGS

  • Denbee, Edward

    ()

    (Bank of England)

  • Norman, Ben

    ()

    (Bank of England)

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.

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File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2010/wp404.pdf
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Paper provided by Bank of England in its series Bank of England working papers with number 404.

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Length: 35 pages
Date of creation: 28 Oct 2010
Date of revision:
Handle: RePEc:boe:boeewp:0404
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  1. 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.
  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, issue Sep, pages 113-133.
  3. 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.
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