Intraday liquidity risk: based on microprudential and macroprudential regulatory perspective

Yutong Yan, Mu Tong, Yi He and Yuying Miao

Applied Economics, 2025, vol. 57, issue 11, 1272-1289

Abstract: This paper addresses the effectiveness of current regulations on intraday liquidity risk through a comprehensive analysis using network structure and payment flow characteristics of China’s large-value payment system. Utilizing simulation and econometric methods, it examines the factors influencing the upper limit of liquidity levels required by payment system participants to satisfy real-time gross settlement (RTGS) and its tail distribution. The results of the study show that: (1) in a network topology, the characteristics of a node significantly affect its demand for intraday liquidity and its exposure to intraday liquidity risk; (2) microprudential regulation based only on individuals not only fails to achieve macroprudential regulatory objectives, but also fails to realize individual microprudential regulatory objectives, and at the same time, it reduces the efficiency of liquidity use; (3) reallocating intraday liquidity among participants based on systemic effects not only saves liquidity overall, but also achieves the macroprudential regulatory objective of liquidity at a high probability level. This study provides valuable theoretical and practical insights for regulators and financial managers, emphasizing the importance of effective regulation to prevent the evolution of intraday liquidity risk into systemic risk.

Date: 2025
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DOI: 10.1080/00036846.2024.2405199

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