Payment system settlement and bank incentives
In this paper we consider the relative merits of net versus gross settlement of interbank payments. Net settlement economizes on the costs of holding non-interest-bearing reserves but increases moral hazard problems. The "put option" value of default under net settlement can also distort banks' investment incentives. ; Absent these distortions, net settlement dominates gross, although the optimal net settlement scheme may involve a positive probability of default. Net settlement becomes more attractive relative to gross settlement if bank assets have to be liquidated at less than book value.
|Date of creation:||1996|
|Publication status:||Published in Review of Financial Studies, Winter 1998|
|Contact details of provider:|| Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309|
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward J. Green, 1999.
"Money and debt in the structure of payments,"
Federal Reserve Bank of Minneapolis, issue Spr, pages 13-29.
- Jean-Charles Rochet & Jean Tirole, 1996.
"Interbank lending and systemic risk,"
Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
- Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-151.
- Ricardo J. Caballero, 1997.
NBER Working Papers
6264, National Bureau of Economic Research, Inc.
- Charles M. Kahn & William Roberds, 1998. "On the role of bank coalitions in the provision of liquidity," Proceedings 590, Federal Reserve Bank of Chicago.
- N/A, 1996. "Note:," Foreign Trade Review, , vol. 31(1-2), pages 1-1, January.
- Freeman, Scott, 1996.
"Clearinghouse banks and banknote over-issue,"
Journal of Monetary Economics,
Elsevier, vol. 38(1), pages 101-115, August.
- Robert A. Eisenbeis, 1987. "Eroding market imperfections: implications for financial intermediaries, the payments system, and regulatory reform," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 19-62.
- Guiseppe Bertola & Ricardo J. Caballero, 1994.
"Irreversibility and Aggregate Investment,"
Review of Economic Studies,
Oxford University Press, vol. 61(2), pages 223-246.
When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:96-10. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elaine Clokey)
If references are entirely missing, you can add them using this form.