Risk and Concentration in Payment and Securities Settlement Systems

• DOI: 10.17016/feds.2007.62
• Publication Date: 2019-08-07T17:02:01Z
• Authors: David C. Mills; Travis D. Nesmith
• Keywords: Settlement (finance); Stylized fact; Payment system; Value (mathematics)

Large value payment and securities settlement systems are important components of an economy's financial system. Many such operated by central banks liquidity intensive. Central often provide inexpensive to facilitate settlement. This leads a number policy questions about the provision liquidity. To answer these questions, need understand what factors influence timing paper offers model better intraday patterns identifies three that settlement: cost liquidity, participant's exposure risk, system design. Incorporating all enables our explain stylized facts concerning behavior within Federal Reserve's Fedwire fund around major change. In particular, captures different responses two in both pattern use The results map out how interacts with participants' incentives resultant credit bank. model, therefore, can inform decision-making at banks.