Measuring the Impact of a Failing Participant in Payment Systems

Ronald Heijmans and Froukelien Wendt

No 2020/081, IMF Working Papers from International Monetary Fund

Abstract: Banks and financial market infrastructures (FMIs) that are not able to fulfill their payment obligations can be a source of financial instability. This paper develops a composite risk indicator to evaluate the criticality of participants in a large value payment system network, combining liquidity risk and interconnections in one approach, and applying this to the TARGET2 payment system. Findings suggest that the most critical participants in TARGET2 are other payment systems, because of the size of underlying payment flows. Some banks may be critical, but this is mainly due to their interconnectedness with other TARGET2 participants. Central counterparties and central securities depositories are less critical. These findings can be used in financial stability analysis, and feed into central bank policies on payment system access, oversight, and crisis management.

Keywords: WP; payment instruction; transaction data; customer payment; payment flow; settlement bank; FMI participant; payment transaction; flows of FMIs need; payment obligation; payment system network; FMI supervisor; FMI type; payment subcategory; Payment systems; PFM information systems; Liquidity risk; Liquidity; Large value payment systems; Global; Financial market infrastructures; TARGET2; systemic impact; oversight; financial stability; payment system participant; payment system oversight; payment transaction data (search for similar items in EconPapers)
Pages: 29
Date: 2020-06-05
New Economics Papers: this item is included in nep-mon and nep-pay
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