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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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    References listed on IDEAS

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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.
    2. León, Carlos & Barucca, Paolo & Acero, Oscar & Gage, Gerardo & Ortega, Fabio, 2020. "Pattern recognition of financial institutions’ payment behavior," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 1(1).

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    More about this item

    Keywords

    Liquidity; payment systems; Gini coefficient;
    All these keywords.

    JEL classification:

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

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