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The Comparative Analysis of Settlement Systems

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  • Kobayakawa, Shuji

Abstract

After a rapid expansion of financial transactions, both the authorities and financial institutions became aware of the risk involved in interbank settlement systems. To cope with the risk the systems in most economies have been designed so that large-sized payments are settled in the real time gross settlement (RTGS) mode, whereas small ones are dealt with in the designated time net settlement system. Yet the introduction of the RTGS system imposes substantial costs of maintaining intraday liquidity on participants, which creates a fear among European as well as Japanese banking communities that they might lose competitiveness against their US counterparts whose main settlement system, Fedwire, does not require collateral. We first compare these different settlement systems from the participant’s cost-benefit perspective and see if this concern always holds. Second, we develop the same framework to analyse the net settlement system, and then suggest if there is a rationale behind the coexistence of both the RTGS and net settlement systems.

Suggested Citation

  • Kobayakawa, Shuji, 1997. "The Comparative Analysis of Settlement Systems," CEPR Discussion Papers 1667, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1667
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    Citations

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    Cited by:

    1. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 0035, European Central Bank.
    2. Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October.
    3. Kahn, Charles M. & Roberds, William, 2001. "Real-time gross settlement and the costs of immediacy," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 299-319, April.
    4. Mark J Manning & Matthew Willison, 2006. "Modelling the cross-border use of collateral in payment systems," Bank of England working papers 286, Bank of England.
    5. 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.
    6. Kahn, Charles M & McAndrews, James & Roberds, William, 2003. " Settlement Risk under Gross and Net Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(4), pages 591-608, August.
    7. 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.
    8. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    9. Xavier Freixas & Curzio Giannini & Glenn Hoggarth & Farouk Soussa, 2000. "Lender of Last Resort: What Have We Learned Since Bagehot?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 18(1), pages 63-84, October.
    10. Matthew Willison, 2005. "Real-Time Gross Settlement and hybrid payment systems: a comparison," Bank of England working papers 252, Bank of England.

    More about this item

    Keywords

    Intraday liquidity; Risk Management; RTGS; Settlement Risk;

    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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