The Impact of Payment Splitting on Liquidity Requirements in RTGS

35 Pages Posted: 1 Nov 2010

See all articles by Edward Denbee

Edward Denbee

Bank of England

Ben Norman

Bank of England - Monetary Analysis

Date Written: October 28, 2010

Abstract

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.

Keywords: Payment Systems, Simulations, Payment Splitting, Liquidity-Saving Mechanisms

JEL Classification: E42, C63

Suggested Citation

Denbee, Edward and Norman, Ben, The Impact of Payment Splitting on Liquidity Requirements in RTGS (October 28, 2010). Bank of England Working Paper No. 404, Available at SSRN: https://ssrn.com/abstract=1701172 or http://dx.doi.org/10.2139/ssrn.1701172

Edward Denbee (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Ben Norman

Bank of England - Monetary Analysis ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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