Skip to main content
Article thumbnail
Location of Repository

Systemic Risk and Liquidity in Payment Systems

By Gara M. Afonso and Hyun Song Shin

Abstract

We study liquidity and systemic risk in high-value payment systems. Flows in high-value systems are characterized by high velocity, meaning that the total amount paid and received is high relative to the stock of reserves. In such systems, banks rely heavily on incoming funds to finance outgoing payments, necessitating a high degree of coordination and synchronization. We use lattice-theoretic methods to solve for the unique fixed point of an equilibrium mapping and conduct comparative statics analyses on changes to the environment. We find that banks attempting to conserve liquidity cause an increase in the demand for intraday credit and, ultimately, a disruption of payments. Additionally, we find that when a bank is identified as vulnerable to failure and other banks choose to cancel payments to that bank, there are systemic repercussions for the whole financial system

Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.173.2135
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://citeseerx.ist.psu.edu/v... (external link)
  • http://www.bankofcanada.ca/en/... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.