Liquidity-saving mechanisms in collateral-based RTGS payment systems

Marius Jurgilas and Antoine Martin

No 389, Bank of England working papers from Bank of England

Abstract: This paper studies banks’ incentives regarding the timing of payment submissions in a collateral-based RTGS payment system and how these incentives change with the introduction of a liquidity-saving mechanism (LSM). We show that an LSM allows banks to economise on collateral while also providing incentives to submit payments earlier. This is because in our model an LSM allows payments to be matched and offset in real time without any or very minimal funds. Under a collateral-based RTGS payment system, introduction of the LSM always improves welfare. The result contrasts with earlier work, which shows that under a fee-based RTGS system, the introduction of an LSM in some circumstances may reduce welfare.

Keywords: liquidity-saving mechanism; intraday liquidity; payments (search for similar items in EconPapers)
JEL-codes: E42 E58 G21 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2010-06-01
New Economics Papers: this item is included in nep-ban and nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Liquidity-saving mechanisms in collateral-based RTGS payment systems (2013)
Working Paper: Liquidity-saving mechanisms in collateral-based RTGS payment systems (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0389

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