A Revided Exposition of the Methodology for Testing Payments Systems Risk

Peter Docherty () and Gehong Wang
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Gehong Wang: Financial Services Office, Haidian District, Beijing

No 159, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: Financial economists and central bankers have been concerned for some time about the possibility of financial contagion spreading from bank to bank via interbank exposures within the payments system. The initial study of payments system risk was undertaken by Humphrey (1986) who found significant risk in the U.S. Fedwire system in the mid 1980s. Subsequent studies by Angelini, Maresca & Russo (1996), Kuussaari (1996), Northcott (2002), Furfine (2003) and Wang & Docherty (2006) have found, however, little evidence of systemic risk in the payments systems of Italy, Finland, Canada, Australia and in the U.S. inter-bank market. All of these studies employ a methodology in which the effects of a simulated failure at one institution on other institutions are examined and quantified but no formal statement of the simulation process is usually provided. One exception to this is the study by Wang & Docherty (2006) but it is possible to further refine and sharpen the exposition offered in that study. The objective of this short paper is simply to provide such an updated and refined exposition of the default simulation methodology used in payments system risk research.

Keywords: payments system; real time gross settlement (RTGS); deferred net settlement (DNS); systemic risk; contaigion (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Pages: 13
Date: 2009-06-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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