CHAPS Sterling is one such system. CHAPS Sterling appears likely to be robust in the event of operational incidents that temporarily prevent a member bank from making payments, because member banks post more collateral with the Bank of England than they generally need to support their payment activities. This article explores why member banks do this. If the cost of being unable to make a payment is high relative to the cost of posting collateral, one would expect banks to post collateral on the basis of possible peak demand and the cost of so doing not to play an important role in the decision. The empirical evidence presented in this article is consistent with this explanation.
Published on
02 November 2004
Press release