Payment prioritisation and liquidity risk in collateralised interbank payment systems
Payment prioritisation and liquidity risk in collateralised interbank payment systems
Participants in interbank payment systems manage a stream of payment requests of varying priority to minimise their total costs. However, individually optimal strategies may conflict with system-wide optimality and can lead to inefficient equilibria, where banks cannot meet obligations in a timely manner. We construct a model of a collateralised payment system and demonstrate that socially optimal states exist in which banks should delay a proportion of non-priority payments in an internal queue, but banks' strategising behaviour leads to liquidity hoarding and increased systemic cost. We discuss how this behaviour can be reduced using measures available to a regulator
agent based, game theory, payment systems, policy, simulation
139-150
De Caux, Bob
a3e6d29e-ed87-4803-b08d-36392c5bf1dd
Brede, Markus
bbd03865-8e0b-4372-b9d7-cd549631f3f7
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
March 2016
De Caux, Bob
a3e6d29e-ed87-4803-b08d-36392c5bf1dd
Brede, Markus
bbd03865-8e0b-4372-b9d7-cd549631f3f7
McGroarty, Frank
693a5396-8e01-4d68-8973-d74184c03072
De Caux, Bob, Brede, Markus and McGroarty, Frank
(2016)
Payment prioritisation and liquidity risk in collateralised interbank payment systems.
Journal of International Financial Markets, Institutions and Money, 41, .
(doi:10.1016/j.intfin.2015.12.009).
Abstract
Participants in interbank payment systems manage a stream of payment requests of varying priority to minimise their total costs. However, individually optimal strategies may conflict with system-wide optimality and can lead to inefficient equilibria, where banks cannot meet obligations in a timely manner. We construct a model of a collateralised payment system and demonstrate that socially optimal states exist in which banks should delay a proportion of non-priority payments in an internal queue, but banks' strategising behaviour leads to liquidity hoarding and increased systemic cost. We discuss how this behaviour can be reduced using measures available to a regulator
Text
JIFMIM_payment_systems.pdf
- Accepted Manuscript
More information
Accepted/In Press date: 23 December 2015
e-pub ahead of print date: 23 January 2016
Published date: March 2016
Keywords:
agent based, game theory, payment systems, policy, simulation
Organisations:
Agents, Interactions & Complexity, Southampton Business School
Identifiers
Local EPrints ID: 383898
URI: http://eprints.soton.ac.uk/id/eprint/383898
ISSN: 1042-4431
PURE UUID: c4a00ba1-e77f-4602-b391-5d9c491cd09b
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Date deposited: 27 Nov 2015 14:51
Last modified: 15 Mar 2024 05:22
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Contributors
Author:
Bob De Caux
Author:
Markus Brede
Author:
Frank McGroarty
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