Unanticipated Defaults and Losses in Canada's Large-Value Payments System, Revisited

Devin Ball and Walter Engert

Discussion Papers from Bank of Canada

Abstract: Recent work at the Bank of Canada studied the impact of default in Canada's large-value payments system, and concluded that participants could readily manage their potential losses (McVanel 2005). In an extension of that work, the authors use a much larger set of daily payments data - with three times as many observations - to examine the simulated losses of private sector participants and the Bank from defaults in the payments system. They also gauge the upper bound of possible losses in the period April 2004 to April 2006. The authors conclude that losses from a participant failure in the large-value payments system are very likely to be small and readily manageable, as in McVanel (2005). For one or two small participants, under some (probably extreme) conditions, losses could be significant, but not solvency threatening. In sum, the risk controls of the large-value payments system allow and encourage participants to keep potential losses manageable.

Keywords: Financial institutions; Payment clearing and settlement systems (search for similar items in EconPapers)
JEL-codes: E44 E47 G21 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (4)

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