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Simulating interbank payments and securities settlement mechanism with the BoF-PSS2 simulator

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  • Leinonen, Harry
  • Soramäki, Kimmo

Abstract

The simulation technique provides a new means for analysing complex interdependencies in payment and securities settlement processing. The Bank of Finland has developed a payment and settlement system simulator (BoF-PSS2) that can be used for constructing simulation models of payment and securities settlement systems.This paper describes the main elements of payment and settlement systems (system structures, interdependencies, processing steps, liquidity consumption, cost and risk dimensions) and how these can be treated in simulation studies.It gives also examples on how these elements have been incorporated in the simulator, as well as an overview of the structure and the features of the BoF-PSS2 simulator. Key words: simulations, simulator, payment systems, clearing/settlement, and liquidity

Suggested Citation

  • Leinonen, Harry & Soramäki, Kimmo, 2003. "Simulating interbank payments and securities settlement mechanism with the BoF-PSS2 simulator," Research Discussion Papers 23/2003, Bank of Finland.
    • Handle: RePEc:bof:bofrdp:2003_023
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    References listed on IDEAS

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    1. Kuussaari, Harri, 1996. "Systemic risk in the finnish payment system : An empirical investigation," Research Discussion Papers 3/1996, Bank of Finland.
    2. Kahn, Charles M & Roberds, William, 1998. "Payment System Settlement and Bank Incentives," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 845-870.
    3. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    4. Leinonen, Harry, 1998. "Interbank funds transfer systems : Liquidity needs, counterparty risks and collateral," Research Discussion Papers 16/1998, Bank of Finland.
    5. Bech, Morten L. & Soramäki, Kimmo, 2001. "Gridlock resolution in interbank payment systems," Research Discussion Papers 9/2001, Bank of Finland.
    6. Koponen, Risto & Soramäki, Kimmo, 1998. "Intraday liquidity needs in a modern interbank payment system : A simulation approach," Scientific Monographs, Bank of Finland, number 1998_014, November.
    7. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
    8. Bech, Morten L. & Garratt, Rod, 2003. "The intraday liquidity management game," Journal of Economic Theory, Elsevier, vol. 109(2), pages 198-219, April.
    9. James J. McAndrews & George Wasilyew, 1995. "Simulations of failure in a payment system," Working Papers 95-19, Federal Reserve Bank of Philadelphia.
    10. Leinonen, Harry, 2003. "Restructuring securities systems processing : A blue print proposal for real-time/t+0 processing," Research Discussion Papers 7/2003, Bank of Finland.
    11. Leinonen, Harry & Lumiala, Veli-Matti & Sarlin, Riku, 2002. "Settlement in modern network-based payment infrastructures : Description and prototype of the E-Settlement model," Research Discussion Papers 23/2002, Bank of Finland.
    12. Craig Furfine & Jeff Stehm, 1997. "Analyzing alternative intraday credit policies in real-time gross settlement systems," Finance and Economics Discussion Series 1997-40, Board of Governors of the Federal Reserve System (U.S.).
    13. Humphrey, David B, 1996. "Comment on Intraday Bank Reserve Management: The Effects of Caps and Fees on Daylight Overdrafts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 909-913, November.
    14. Freixas, Xavier & Parigi, Bruno, 1998. "Contagion and Efficiency in Gross and Net Interbank Payment Systems," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 3-31, January.
    15. Angelini, P. & Maresca, G. & Russo, D., 1996. "Systemic risk in the netting system," Journal of Banking & Finance, Elsevier, vol. 20(5), pages 853-868, June.
    16. Leinonen, Harry & Soramäki, Kimmo, 1999. "Optimizing liquidity usage and settlement speed in payment systems," Research Discussion Papers 16/1999, Bank of Finland.
    17. Guntzer, Michael M. & Jungnickel, Dieter & Leclerc, Matthias, 1998. "Efficient algorithms for the clearing of interbank payments," European Journal of Operational Research, Elsevier, vol. 106(1), pages 212-219, April.
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    Cited by:

    1. Shafransky, Yakov M. & Doudkin, Alexander A., 2006. "An optimization algorithm for the clearing of interbank payments," European Journal of Operational Research, Elsevier, vol. 171(3), pages 743-749, June.
    2. Iivarinen, Timo, 2004. "Large value payment systems : principles and present and future developments," Research Discussion Papers 13/2004, Bank of Finland.
    3. Galos, Peter & Soramäki, Kimmo, 2005. "Systemic risk in alternative payment system designs," Working Paper Series 508, European Central Bank.

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