The Impact of Payment System Design on Tiering Incentives
Tiering occurs when an institution does not participate directly in the central payment system but instead settles its payments through an agent. A high level of tiering can be a significant issue for payment system regulators because of the increased credit and concentration risk. This paper explores the impact of payment system design on institutions' incentives to tier using simulation analysis. Some evidence is found to support the hypothesis that the liquidity-saving mechanisms in Australia's real-time gross settlement (RTGS) system – the Reserve Bank Information and Transfer System (RITS) – reduce the liquidity cost of direct participation. This may have contributed to the low level of tiering in RITS relative to RTGS systems in other countries. We find no clear relationship between system design and the size of the substantial two-way exposures tiering creates between clients and their settlement banks. Our data suggest that more tiering would result in only small increases to the level of concentration in RITS.
|Date of creation:||Oct 2012|
|Contact details of provider:|| Postal: GPO Box 3947, Sydney NSW 2001|
Web page: http://www.rba.gov.au/
More information through EDIRC
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.:
- Alexandra Lai & Nikil Chande & Sean O'Connor, 2006.
"Credit in a Tiered Payments System,"
Staff Working Papers
06-36, Bank of Canada.
- Alexandra Lai & Nikil Chande & Sean O'Conner, 2007. "Credit in a Tiered Payments System," DNB Working Papers 126, Netherlands Central Bank, Research Department.
- Charles M. Kahn & William Roberds, 2009. "Payments Settlement: Tiering in Private and Public Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(5), pages 855-884, 08.
- James Chapman & Jonathan Chiu & Miguel Molico, 2013. "A Model of Tiered Settlement Networks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 327-347, 03.
- James Chapman & Jonathan Chiu & Miguel Molico, 2008. "A Model of Tiered Settlement Networks," Staff Working Papers 08-12, Bank of Canada.
- Adams, Mark & Galbiati, Marco & Giansante, Simone, 2010. "Liquidity costs and tiering in large-value payment systems," Bank of England working papers 399, Bank of England.
- Ana Lasaosa & Merxe Tudela, 2008. "Risks and efficiency gains of a tiered structure in large-value payments: a simulation approach," Bank of England working papers 337, Bank of England. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:rba:rbardp:rdp2012-06. 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: (Paula Drew)
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.