A study of competing designs for a liquidity-saving mechanism
We study two designs for a liquidity-saving mechanism (LSM), a queuing arrangement used with an interbank settlement system. We consider an environment where banks are subjected to liquidity shocks. Banks must make the decision to send, queue, or delay their payments after observing a noisy signal of the shock. With a balance-reactive LSM, banks can set a balance threshold below which payments are not released from the queue. Banks can choose their threshold such that the release of a payment from the queue is conditional on the liquidity shock. With a receipt-reactive LSM, a payment is released from the queue if an offsetting payment is received, regardless of the liquidity shock. We find that these two designs have opposite effects on different types of payments. Payments that are costly to delay will be settled at least as early, or earlier, with a receipt-reactive LSM. Payments that are not costly to delay will always be delayed with a receipt-reactive LSM, while some of them will be queued and settled early with a balance-reactive LSM. We also show that parameter values will determine which system provides higher welfare.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: 33 Liberty Street, New York, NY 10045-0001|
Web page: http://www.newyorkfed.org/
More information through EDIRC
|Order Information:|| Web: http://www.ny.frb.org/rmaghome/staff_rp/ 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, 2000.
"The CLS Bank: a solution to the risks of international payments settlement?,"
FRB Atlanta Working Paper
2000-15, Federal Reserve Bank of Atlanta.
- Kahn, Charles M. & Roberds, William, 2001. "The CLS bank: a solution to the risks of international payments settlement?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 54(1), pages 191-226, June.
- Angelini, Paolo, 2000. "Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 54-73, February.
- Koppl, Thorsten V. & Monnet, Cyril, 2007. "Guess what: It's the settlements! Vertical integration as a barrier to efficient exchange consolidation," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3013-3033, October.
- Xavier Freixas & Bruno Parigi, 1996.
"Contagion and efficiency in gross and net interbank payment systems,"
Economics Working Papers
176, Department of Economics and Business, Universitat Pompeu Fabra, revised Jun 1996.
- Freixas, Xavier & Parigi, Bruno, 1998. "Contagion and Efficiency in Gross and Net Interbank Payment Systems," Journal of Financial Intermediation, Elsevier, vol. 7(1), pages 3-31, January.
- Xavier Freixas & Bruno Parigi, 1998. "Contagion and efficiency in gross and net interbank payment systems," Proceedings 592, Federal Reserve Bank of Chicago.
- Jamie McAndrews & Antoine Martin, 2007.
"Liquidity saving mechanisms,"
2007 Meeting Papers
165, Society for Economic Dynamics.
- Kauko, Karlo, 2003.
"Interlinking securities settlement systems : A strategic commitment?,"
Research Discussion Papers
26/2003, Bank of Finland.
- Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
- Kauko, Karlo, 2005. "Interlinking securities settlement systems: a strategic commitment?," Working Paper Series 0427, European Central Bank.
- Enghin Atalay & Antoine Martin & James J. McAndrews, 2008. "The welfare effects of a liquidity-saving mechanism," Staff Reports 331, Federal Reserve Bank of New York.
- Baris Serifsoy & Marco Weiß, 2007.
"Settling for Efficiency - A Framework for the European Securities Transactions Industry,"
Working Paper Series: Finance and Accounting
151, Department of Finance, Goethe University Frankfurt am Main.
- Serifsoy, Baris & Wei[ss], Marco, 2007. "Settling for efficiency - A framework for the European securities transaction industry," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3034-3057, October.
- Morten L. Bech & Bart Hobijn, 2006.
"Technology diffusion within central banking: the case of real-time gross settlement,"
260, Federal Reserve Bank of New York.
- Morten L. Bech & Bart Hobijn, 2007. "Technology Diffusion within Central Banking: The Case of Real-Time Gross Settlement," International Journal of Central Banking, International Journal of Central Banking, vol. 3(3), pages 147-181, September.
- Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
- Serifsoy, Baris, 2007. "Stock exchange business models and their operative performance," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2978-3012, October.
- Antoine Martin, 2002.
"Optimal pricing of intra-day liquidity,"
Research Working Paper
RWP 02-02, Federal Reserve Bank of Kansas City.
- Van Cayseele, Patrick & Wuyts, Christophe, 2007. "Cost efficiency in the European securities settlement and depository industry," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3058-3079, October.
- Kurt Johnson & James J. McAndrews & Kimmo Soramaki, 2004. "Economizing on liquidity with deferred settlement mechanisms," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 51-72.
- Bech, Morten L. & Garratt, Rod, 2003.
"The intraday liquidity management game,"
Journal of Economic Theory,
Elsevier, vol. 109(2), pages 198-219, April.
- Bech, Morten L. & Garratt, Rod, 2001. "The Intraday Liquidity Management Game," University of California at Santa Barbara, Economics Working Paper Series qt0m6035wg, Department of Economics, UC Santa Barbara.
- Mills Jr., David C. & Nesmith, Travis D., 2008.
"Risk and concentration in payment and securities settlement systems,"
Journal of Monetary Economics,
Elsevier, vol. 55(3), pages 542-553, April.
- David C. Mills & Travis D. Nesmith, 2007. "Risk and concentration in payment and securities settlement systems," Finance and Economics Discussion Series 2007-62, Board of Governors of the Federal Reserve System (U.S.).
- Leinonen, Harry, 2007. "Simulation studies of liquidity needs, risks and efficiency in payment networks : Proceedings from the Bank of Finland Payment and Settlement System Seminars 2005-2006," Scientific Monographs, Bank of Finland, number 2007_039, October.
- Milne, Alistair, 2007. "The industrial organization of post-trade clearing and settlement," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2945-2961, October.
- Angelini, Paolo, 2000. "Erratum [Are Banks Risk Averse? Intraday Timing of Operations in the Interbank Market]," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 442, August.
- Lester Benjamin, 2009. "Settlement Systems," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-35, May.
- Matthew Willison, 2005. "Real-Time Gross Settlement and hybrid payment systems: a comparison," Bank of England working papers 252, Bank of England.
When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:336. 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: (Amy Farber)
If references are entirely missing, you can add them using this form.