The impact of de-tiering in the United Kingdom’s large-value payment system

Evangelos Benos (), Gerardo Ferrara and Pedro Gurrola-Perez ()
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Evangelos Benos: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Pedro Gurrola-Perez: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Authors registered in the RePEc Author Service: Pedro Gurrola Perez

No 676, Bank of England working papers from Bank of England

Abstract: Large-value payment systems (LVPS) often have a tiered structure where only a limited number of banks have direct access to these systems and every other institution accesses the system through agency arrangements with the direct participants. As such, a high degree of tiering is often perceived as being associated with credit and operational risks. In this paper we use data around five recent de-tiering events in the United Kingdom’s LVPS(CHAPS), to assess the impact of de-tiering on these risks as well as on liquidity usage. We find that the impact of de-tiering is largest on credit risk, where average intraday exposures between first and second-tier banks drop by anywhere between £0.3 billion and £1.5 billion per bank, while the cost of insuring against losses arising from these exposures drops by about £4 million to £19 million per bank, per year. On the other hand, the impact of these de-tiering events on operational risk and liquidity usage appears to be economically small.

Keywords: Payment systems; tiering (search for similar items in EconPapers)
JEL-codes: E42 G23 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2017-09-08
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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