How has the Liquidity Saving Mechanism reduced banks’ intraday liquidity costs in CHAPS?

Nick Davey () and Daniel Gray ()
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Nick Davey: Bank of England
Daniel Gray: Bank of England

Bank of England Quarterly Bulletin, 2014, vol. 54, issue 2, 180-189

Abstract: Banks require intraday liquidity to settle payments in CHAPS, the United Kingdom’s high-value sterling payment system. In April 2013, the Bank of England introduced a Liquidity Saving Mechanism (LSM) into the infrastructure used to settle CHAPS payments. The LSM has reduced CHAPS banks’ intraday liquidity requirements by around 20% (or £4 billion). The LSM has reduced incentives for banks to adopt adverse behaviours to economise on their intraday liquidity requirements, thus enhancing the resilience and efficiency of CHAPS.

Date: 2014
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