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|
|Date of revision:|
|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: |
References listed on IDEAS
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.:
- Charles M. Kahn & William Roberds, 1998. "On the role of bank coalitions in the provision of liquidity," Proceedings 590, Federal Reserve Bank of Chicago.
- 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.
- Green, Edward-J, 1997.
"Money and Debt in the Structure of Payments,"
Monetary and Economic Studies,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 15(1), pages 63-87, May.
- Jean-Charles Rochet & Jean Tirole, 1996.
"Interbank lending and systemic risk,"
Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
- Ricardo J. Caballero, 1997.
NBER Working Papers
6264, National Bureau of Economic Research, Inc.
- Bernanke, Ben S, 1990. "Clearing and Settlement during the Crash," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 133-51.
- Giuseppe Bertola & Ricardo J. Caballero, 1991.
"Irreversibility and Aggregate Investment,"
NBER Working Papers
3865, National Bureau of Economic Research, Inc.
- Freeman, Scott, 1993.
"Clearinghouse banks and banknote over-issue,"
9326, Federal Reserve Bank of Dallas.
- N/A, 1996. "Note:," Foreign Trade Review, Indian Institute of Foreign Trade, vol. 31(1-2), pages 1-1, January.
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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.