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Settlement bank behaviour and throughput rules in an RTGS payment system with collateralised intraday credit

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  • Simon Buckle
  • Erin Campbell

Abstract

A simple two-period, two-bank model of an RTGS system with collateralised intraday credit is presented. It is shown that two types of outcome are possible - inefficient or efficient - depending on whether banks care about payments imbalances between them in the first period. If they do, banks delay payments to each other, increasing their aggregate liquidity requirements. It is argued that efficiency is not guaranteed even when banks face repeated interaction in a real payment system, largely because of imperfect information and the competitive dynamics of the payment industry. An efficient outcome can be achieved by the imposition of throughput rules on the value of payments banks must make by a certain deadline. These can both reduce aggregate liquidity requirements and increase the contestability of the payments market, encouraging a higher degree of direct access to payment systems. Throughput rules could therefore also have risk-reduction benefits if they help to reduce the level of tiering in the financial system. The detailed characteristics of these rules are shown to be important, and a number of design issues are addressed, such as how frequently requirements should be set, and whether throughput rules should apply on an aggregate or bilateral basis.

Suggested Citation

  • Simon Buckle & Erin Campbell, 2003. "Settlement bank behaviour and throughput rules in an RTGS payment system with collateralised intraday credit," Bank of England working papers 209, Bank of England.
  • Handle: RePEc:boe:boeewp:209
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    References listed on IDEAS

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    6. James J. McAndrews & Samira Rajan, 2000. "The timing and funding of Fedwire funds transfers," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 17-32.
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    Cited by:

    1. Galbiati, Marco & Soramäki, Kimmo, 2011. "An agent-based model of payment systems," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 859-875, June.
    2. Ball, Alan & Denbee, Edward & Manning, Mark & Wetherilt, Anne, 2011. "Financial Stability Paper No 11: Intraday Liquidity - Risk and Regulation," Bank of England Financial Stability Papers 11, Bank of England.
    3. Leinonen, Harry, 2009. "Simulation analyses and stress testing of payment networks," Scientific Monographs, Bank of Finland, number 2009_042.
    4. Schulz, Christian, 2011. "Liquidity requirements and payment delays - participant type dependent preferences," Working Paper Series 1291, European Central Bank.
    5. Tomohiro Ota, 2016. "Sequential payments and optimal pricing in payment systems," Annals of Finance, Springer, vol. 12(3), pages 441-463, December.
    6. B. Craig & D. Salakhova & M. Saldias, 2018. "Payments delay: propagation and punishment," Working papers 671, Banque de France.
    7. Nellen, Thomas, 2019. "Intraday liquidity facilities, late settlement fee and coordination," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 124-131.
    8. Cronin, David, 2011. "Large-Value Payment System Design and Risk Management," Quarterly Bulletin Articles, Central Bank of Ireland, pages 78-88, January.
    9. Norman, Ben, 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.

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