The Impact of Payment Splitting on Liquidity Requirements in RTGS
35 Pages Posted: 1 Nov 2010
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: Suggested Citation
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