How Banks Create Gridlock to Save Liquidity in Canada's Large Value Payment System

Rodney Garratt, Zhentong Lu and Phoebe Tian

Staff Working Papers from Bank of Canada

Abstract: Using detailed data from Canada’s new high-value payment system (HVPS), we show how participants of the system save liquidity by exploiting the new gridlock resolution arrangement. These observed behaviors are consistent with the equilibrium of a “gridlock game” that captures the key incentives that participants face in the system. The findings have important implications for the design of HVPSs and shed light on financial institutions’ liquidity preference.

Keywords: Financial institutions; Payment clearing and settlement systems (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2023-05
New Economics Papers: this item is included in nep-ban, nep-mon and nep-pay
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:23-26

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