A dynamic approach to intraday liquidity needs

Freddy Cepeda L. and Fabio Ortega
Authors registered in the RePEc Author Service: Freddy Cepeda-Lopez

No 12686, Borradores de Economia from Banco de la Republica

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; si (search for similar items in EconPapers)
JEL-codes: C63 D53 D85 E51 G21 G23 (search for similar items in EconPapers)
Pages: 18
Date: 2015-03-30
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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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:col:000094:012686

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