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The Role of Counterparty Risk in CHAPS Following the Collapse of Lehman Brothers

Evangelos Benos (), Rodney Garratt () and Peter Zimmerman ()

International Journal of Central Banking, 2014, vol. 10, issue 4, 143-172

Abstract: We study the impact of the recent global financial crisis on CHAPS, the United Kingdom’s large-value payments system. Core infrastructures functioned smoothly throughout the crisis and settlement banks continued to meet their payment obligations. However, payments data show that in the two months following the Lehman Brothers failure, banks did, on average, make payments at a slower pace than before the failure. We show that this slowdown is related to concerns about counterparty default risk, thereby identifying a new channel through which counterparty risk manifests itself in financial markets.

JEL-codes: E42 (search for similar items in EconPapers)
Date: 2014
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International Journal of Central Banking is currently edited by Loretta J. Mester

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