The Cost of Secured Intraday Overdraft Facilities

Marco Rossi
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Marco Rossi: International Monetary Fund

Chapter 5 in Payment Systems in the Financial Markets, 1998, pp 77-104 from Palgrave Macmillan

Abstract: Abstract The provision of intraday credit to an RTGS system can also take the form of secured overdraft facilities. This is a way to increase the possibility for the participating banks to get intraday liquidity by allowing them to overdraw their account at the central bank against collateral without countervailing the recommendation (rules) contained in the statute of the European System of Central Banks (ESCB).1 This approach to overdraft facilities seems to stem from the assumption that collateralisation has beneficial effects particularly in terms of risk reduction, despite the ample literature about the shortcomings of collateralisation as a means of securing risks in financial markets in presence of asymmetric information [Jaffee and Modigliani (1969); Azzi and Cox (1976); Bester (1985); Stiglitz and Weiss (1981, 1986)]. In the Appendix to this chapter, it is shown how collateral requirements might affect banks’ attitude towards risks and, hence, their probability of default.

Keywords: Central Bank; Basis Point; Financial Asset; Funding Cost; Credit Line (search for similar items in EconPapers)
Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-26374-5_5

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DOI: 10.1007/978-1-349-26374-5_5

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