Substitution between net and gross settlement systems: A concern for financial stability?
While net settlement systems make more efficient use of liquidity than gross settlement systems, they are known to generate systemic risk. What does that tendency imply for the stability of the payments (or financial) system when the two settlement systems coexist? Do liquidity shortages induce banks to settle more transactions in the net settlement system, thereby increasing systemic risk? Or do banks require their counterparties to send payments through the gross settlement system when default risks are high, increasing the need for liquidity and the money market rate but reducing overall systemic risk? This paper studies the factors that drive the relative importance of net and gross settlement systems over the short run, using daily data on transaction volumes from the large- volume payment systems of all euro area countries that have had both a net and a gross settlement system at the same time. Applying a large portfolio of different econometric techniques, we find that it is actually the transaction volumes in gross settlement systems that affect the daily price of liquidity and the credit risk spread in money markets.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: 1455 East 6th St., Cleveland OH 44114|
Web page: http://www.clevelandfed.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.:
- 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.
- Charles M. Kahn & William Roberds, 1999. "Real-time gross settlement and the costs of immediacy," FRB Atlanta Working Paper 98-21, Federal Reserve Bank of Atlanta.
- Holthausen, Cornelia & Rochet, Jean-Charles, 2006.
"Efficient Pricing of Large Value Interbank Payment Systems,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 38(7), pages 1797-1818, October.
- Holthausen, Cornelia & Rochet, Jean-Charles, 2003. "Efficient Pricing of Large Value Interbank Payment Systems," IDEI Working Papers 185, Institut d'Économie Industrielle (IDEI), Toulouse.
- Holthausen, Cornelia & Rochet, Jean-Charles, 2002. "Efficient pricing of large value interbank payment systems," Working Paper Series 0184, European Central Bank.
- Holthausen, Cornelia & Rochet, Jean-Charles, 2003. "Efficient Pricing of Large Value Interbank Payment Systems," CEPR Discussion Papers 3943, C.E.P.R. Discussion Papers.
- Charles M. Kahn & William Roberds, 1996.
"Payment system settlement and bank incentives,"
FRB Atlanta Working Paper
96-10, Federal Reserve Bank of Atlanta.
- Charles M. Kahn & William Roberds, . "Payment System Settlement and Bank Incentives," Center for Financial Institutions Working Papers 97-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Charles M. Kahn & William Roberds, 1997. "Payment system settlement and bank incentives," Proceedings 537, Federal Reserve Bank of Chicago.
- Holthausen, Cornelia & Rochet, Jean-Charles, 2005. "Incorporating a "public good factor" into the pricing of large-value payment systems," Working Paper Series 0507, European Central Bank.
- Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
- Charles M. Kahn & James J. McAndrews & William Roberds, 1999.
"Settlement risk under gross and net settlement,"
86, Federal Reserve Bank of New York.
- Jeffrey M. Lacker, 1997.
"Clearing, settlement, and monetary policy,"
97-01, Federal Reserve Bank of Richmond.
When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:1132. 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: (4D Library)
If references are entirely missing, you can add them using this form.