A dynamic approach to intraday liquidity needs

Freddy Cepeda L. () and Fabio Ortega
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Freddy Cepeda L.: Banco de la República de Colombia
Authors registered in the RePEc Author Service: Freddy Cepeda-Lopez

Borradores de Economia from Banco de la Republica de Colombia

Abstract: This paper presents a methodology to estimate the intraday liquidity that systemically important entities (SIE) need to fulfill all its obligations in a timely fashion, when a simulated failure-to-pay from its main liquidity supplier by discretionary concepts of payment occurs. Using the Bank of Finland’s simulator and the fund transfer data from Colombian large value payment system, we achieve a dynamic estimation measuring three types of effects (direct, second round and feedback). The results validate the existence of a non-linear relationship between the initial failure-to-pay of a specific institution and extended failures-to-pay to the rest of system. An Intraday Liquidity Sufficiency Index is proposed to quantify the average amount of additional liquidity needed to fulfill timely all SIE’s obligations without generating second-round effects. Our methodology and recommendations contribute to the international discussion on management intraday liquidity risk, to efficiency and security of the payment system, and ultimately to financial stability.

Keywords: Large value payment system; intraday liquidity; counterparty stress test; discretionary payments; simulation; direct effect; second-round effect; feedback effect; network topology. (search for similar items in EconPapers)
JEL-codes: C63 D53 D85 E51 G21 G23 (search for similar items in EconPapers)
Pages: 18
Date: 2015-03
New Economics Papers: this item is included in nep-mst and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://doi.org/10.32468/be.877 (application/pdf)

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Working Paper: A dynamic approach to intraday liquidity needs (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:877

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