The impact of payment splitting on liquidity requirements in RTGS

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 06 October 2010

Working Paper No. 404
By Edward Denbee and Ben Norman 

This paper examines the impact that payment splitting could have upon the liquidity requirements and efficiency of a large-value payment system, such as the United Kingdom’s CHAPS. Using the Bank of Finland Payment and Settlement Simulator and real UK payments data we find that payment splitting could reduce the liquidity required to settle payments. The reduction in required liquidity would increase as the payment splitting threshold decreased but the relationship is non-linear. Liquidity savings are not homogeneously distributed, with some banks benefiting more than others.

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