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Estimating Settlement Risk and the Potential for Contagion in Canada's Automated Clearing Settlement System

Carol Ann Northcott

Staff Working Papers from Bank of Canada

Keywords: Financial institutions; Payments clearing and settlements systems (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Pages: 51 pages Abstract: Payments systems operate virtually unnoticed in our daily lives and yet are crucial to a wellfunctioning economy and financial system. Because they explicitly link financial institutions, payments systems provide a way to transmit risk within, and between, financial systems. Ideally, payments systems should be designed and operated so as not to add risk in the event of a crisis. The author examines the potential for contagion through linkages arising from the interaction of financial institutions in a Canadian payments system, the Automated Clearing Settlement System (ACSS). A method of measuring risk in the system, given its unique design, is developed and used to estimate contagion over a wide range of conditions. The author finds, first and foremost, that the ACSS has only a limited capacity, if any, to facilitate contagion in the current environment.
Date: 2002
New Economics Papers: this item is included in nep-cmp, nep-fmk, nep-mac and nep-rmg
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