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Variations in liquidity provision in real-time payment systems

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  • Denbee, Edward

    () (Bank of England)

  • Garratt, Rodney

    () (Federal Reserve Bank of New York)

  • Zimmerman, Peter

    () (Bank of England)

Abstract

We describe methods for measuring liquidity provision that can be applied to real-time gross settlement payment systems. Using data from CHAPS, the UK large-value payment system, we find that smaller banks tend to provide more liquidity than larger banks, relative to their payment flows. We use a Gini coefficient to measure these variations in liquidity provision between banks, and observe that the variations increase following the collapse of Lehman Brothers. It can be difficult to tell whether the variations are intentional or whether they occur due to external factors that are beyond the control of the individual banks. We use a recombinant approach to detect instances where observed patterns of liquidity provision are unlikely to have occurred absent of some behavioural or structural factors, such as differences in banks’ business models. Our results suggest that the variations in liquidity provision are larger than would be expected from truly random payment flows.

Suggested Citation

  • Denbee, Edward & Garratt, Rodney & Zimmerman, Peter, 2014. "Variations in liquidity provision in real-time payment systems," Bank of England working papers 513, Bank of England.
  • Handle: RePEc:boe:boeewp:0513
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2014/variations-in-liquidity-provision-in-real-time-payment-systems.pdf
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    References listed on IDEAS

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    1. Bech, Morten L. & Soramäki, Kimmo, 2001. "Gridlock resolution in interbank payment systems," Research Discussion Papers 9/2001, Bank of Finland.
    2. James J. McAndrews & Simon M. Potter, 2002. "Liquidity effects of the events of September 11, 2001," Economic Policy Review, Federal Reserve Bank of New York, issue Nov, pages 59-79.
    3. Kakwani, Nanak C, 1977. "Applications of Lorenz Curves in Economic Analysis," Econometrica, Econometric Society, vol. 45(3), pages 719-727, April.
    4. Jurgilas, Marius & Zikes, Filip, 2012. "Implicit intraday interest rate in the UK unsecured overnight money market," Bank of England working papers 447, Bank of England.
    5. Benos, Evangelos & Garratt, Rodney & zimmerman, Peter, 2012. "Bank behaviour and risks in CHAPS following the collapse of Lehman Brothers," Bank of England working papers 451, Bank of England.
    6. Davey, Nick & Gray, Daniel, 2014. "How has the Liquidity Saving Mechanism reduced banks’ intraday liquidity costs in CHAPS?," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 180-189.
    7. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    8. John P. Jackson & Mark J. Manning, 2007. "Central Bank intraday collateral policy and implications for tiering in rtgs payment systems," DNB Working Papers 129, Netherlands Central Bank, Research Department.
    9. 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.
    10. Marco Galbiati & Simone Giansante, 2010. "Emergence of networks in large value payment systems (LVPSs)," Department of Economic Policy, Finance and Development (DEPFID) University of Siena 0110, Department of Economic Policy, Finance and Development (DEPFID), University of Siena.
    11. Finan, Kevin & Lasaosa, Ana & Sunderland, Jamie, 2013. "Tiering in CHAPS," Bank of England Quarterly Bulletin, Bank of England, vol. 53(4), pages 371-378.
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    Cited by:

    1. Benos, Evangelos & Ferrara, Gerardo & Gurrola-Perez, Pedro, 2017. "The impact of de-tiering in the United Kingdom’s large-value payment system," Bank of England working papers 676, Bank of England.

    More about this item

    Keywords

    Liquidity; payment systems; Gini coefficient;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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