System-wide liquidity risk in the United Kingdom's large-value payment system: an empirical analysis

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 27 May 2011

Working Paper No. 427
By Marcelo Perlin and Jochen Schanz 

When settling their own liabilities and those of their clients, settlement banks rely on incoming payments to fund a part of their outgoing payments. We investigate their behaviour in CHAPS, the United Kingdom’s large-value payment system. Our estimates suggest that in normal times, banks increase their payment outflows when their liquidity is above target and immediately following the receipt of payments. We use these estimates to determine the robustness of this payment system to two hypothetical behavioural changes. In the first, a single bank stops sending payments, perhaps because of an operational problem. In the second, it pays out exactly what it previously received, relying exclusively on the liquidity provided by other system members. Using the observed uncertainty around our estimated behavioural equations, we derive probabilistic statements about the time at which the bank’s counterparties would run out of liquidity if they followed their estimated normal-time behaviour.

PDF System-wide liquidity risk in the United Kingdom’s large-value payment system: an empirical analysis 

Other papers

Give your feedback

Was this page useful?
Yes
No
Add your details...