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Liquidity requirements and payment delays - participant type dependent preferences

  • Schulz, Christian

The paper presents an analysis of the trade-offs of participants of different type between payment delay and liquidity requirement on the basis of synthetically generated data. The generation of the synthetic transaction data set for a simple RTGS system is described and calibrated using real world parameters. The payment system is simulated for various liquidity levels and it is shown that participants of different size in terms of transaction volume and value will have different optimal liquidity requirements, as the payment delays they face for each liquidity level will be different. This is shown using indifference curves between payment delay and liquidity requirements. JEL Classification: C15, C5, E58, L14, L41, L51

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Paper provided by European Central Bank in its series Working Paper Series with number 1291.

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Date of creation: Feb 2011
Date of revision:
Handle: RePEc:ecb:ecbwps:20111291
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  1. C. H. Furfine, 1999. "The pricing of bank lending and borrowing: evidence from the federal funds market," BIS Working Papers 62, Bank for International Settlements.
  2. Peter Docherty & G Wang, 2006. "Using Synthetic Data to Measure the Impact of RTGS on Systemic Risk in the Australian Payments System," Working Paper Series 149, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  3. Ronald Heijmans, 2009. "Simulations in the Dutch interbank payment system: A sensitivity analysis," DNB Working Papers 199, Netherlands Central Bank, Research Department.
  4. Bank of Japan, 2001. "Real-Time Gross Settlement (RTGS) in Japan: An Evaluation of the First Six Months," Bank of Japan Research Papers 2001-11-01, Bank of Japan.
  5. Fujiki, Hiroshi & Green, Edward J. & Yamazaki, Akira, 2008. "Incentive efficient risk sharing in a settlement mechanism," Journal of Economic Theory, Elsevier, vol. 142(1), pages 178-195, September.
  6. Soramäki, Kimmo & Bech, Morten L. & Arnold, Jeffrey & Glass, Robert J. & Beyeler, Walter E., 2007. "The topology of interbank payment flows," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 379(1), pages 317-333.
  7. 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.
  8. Arco van Oord & Howie Lin, 2005. "Molling Inter- and Intraday Payment Flows," DNB Working Papers 074, Netherlands Central Bank, Research Department.
  9. Manning, Mark & Nier, Erlend & Schanz, Jochen (ed.), 2009. "The Economics of Large-value Payments and Settlement: Theory and Policy Issues for Central Banks," OUP Catalogue, Oxford University Press, number 9780199571116.
  10. Neil Wallace, 2000. "Knowledge of individual histories and optimal payment arrangements," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 11-21.
  11. Craig Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings 633, Federal Reserve Bank of Chicago.
  12. Elisabeth Ledrut, 2007. "Simulating retaliation in payment systems: Can banks control their exposure to a failing participant?," DNB Working Papers 133, Netherlands Central Bank, Research Department.
  13. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
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