Intraday liquidity management: a tale of games banks play

Over the last few decades, most central banks, concerned about settlement risks inherent in payment netting systems, have implemented real-time gross settlement (RTGS) systems. Although RTGS systems can significantly reduce settlement risk, they require greater liquidity to smooth nonsynchronized payment flows. Thus, central banks typically provide intraday credit to member banks, either as collateralized credit or priced credit. Because intraday credit is costly for banks, how intraday liquidity is managed has become a competitive parameter in commercial banking and a policy concern of central banks. This article uses a game-theoretical framework to analyze the intraday liquidity management behavior of banks in an RTGS setting. The games played by banks depend on the intraday credit policy of the central bank and encompass two well-known paradigms in game theory: "the prisoner's dilemma" and "the stag hunt." The former strategy arises in a collateralized credit regime, where banks have an incentive to delay payments if intraday credit is expensive, an outcome that is socially inefficient. The latter strategy occurs in a priced credit regime, where postponement of payments can be socially efficient under certain circumstances. The author also discusses how several extensions of the framework affect the results, such as settlement risk, incomplete information, heterogeneity, and repeated play.Payment systems ; Banks and banking, Central ; Bank liquidity ; Game theory ; Credit

Profits and balance sheet developments at U.S. commercial banks in 2008

Bank profits ; Banks and banking

The topology of the federal funds market

We explore the network topology of the federal funds market. This market is important for distributing liquidity throughout the financial system and for the implementation of monetary policy. The recent turmoil in global financial markets underscores its importance. We find that the network is sparse, exhibits the small world phenomenon and is disassortative. Reciprocity tracks the federal funds rate and centrality measures are useful predictors of the interest rate of a loan. JEL Classification: E4, E58, E59, G1interbank, money market, network, topology

Global trends in large-value payments

Globalization and technological innovation are two major forces affecting the financial system and its infrastructure. Perhaps nowhere are these trends more apparent than in the internationalization and automation of payments. While the effects of globalization and technological innovation are most obvious on retail payments, the influence is equally impressive on wholesale, or interbank, payments. Given the importance of payments and settlement systems to the smooth operation and resiliency of the financial system, it is important to understand the potential consequences of these developments. This article presents ten major long-range trends in the settlement of large-value payments worldwide. The trends are driven by technological innovation, structural changes in banking, and the evolution of central bank policies. The authors observe that banks, to balance risks and costs more effectively, are increasingly making large-value payments in real-time systems with advanced liquidity-management and liquidity-saving mechanisms. Moreover, banks are settling a larger number of foreign currencies directly in their home country by using offshore systems and settling a greater number of foreign exchange transactions in Continuous Linked Settlement Bank or through payment-versus-payment mechanisms in other systems. The study also shows that the service level of systems is improving, through enhancements such as longer operating hours and standardized risk management practices that adhere to common standards, while transaction fees are decreasing. Payments settled in large-value payments systems are more numerous, but on average of smaller value. Furthermore, the overall nominal total value of large-value payments is increasing, although the real value is declining.Payment systems ; Electronic funds transfers ; Banks and banking - Automation ; Interbank market ; Globalization

F(750), We Miss You as a Bound State of 6 Top and 6 Antitop Quarks, Multiple Point Principle

We review our speculation, that in the pure Standard Model the exchange of Higgses, including also the ones "eaten by $W^{\pm}$ and Z", and of gluons together make a bound state of 6 top plus 6 anti top quarks bind so strongly that its mass gets down to about 1/3 of the mass of the collective mass 12 $m_t$ of the 12 constituent quarks. The true importance of this speculated bound state is that it makes it possible to uphold, even inside the Standard Mode, our proposal for what is really a new law of nature saying that there are several phases of empty space, vacua, all having very small energy densities (of the order of the present energy density in the universe). The reason suggested for believing in this new law called the "Multiple (Criticality) Point Principle" is, that estimating the mass of the speculated bound state using the "Multiple Point Principle" leads to two consistent mass-values; and they even agree with a crude bag-model like estimate of the mass of this bound state. Very, unfortunately, the statistical fluctuation so popular last year, when interpreted as the digamma resonance F(750), turned out not to be a real resonance, because our estimated bound state mass is just around the mass of 750 GeV.Comment: 25 pages, 11 figures, Corfu Summer Institute 2016 "School and Workshops on Elementary Particle Physics and Gravity", 31 August - 23 September, 2016, Corfu, Greec

The Financial Crisis and the Changing Dynamics of the Yield Curve

We present evidence on the changing dynamics of the yield curve from 1998 to 2011. We identify four different phases. As expected, the financial crisis represents a period of elevated yield volatility, but it can be split into two distinct periods. The split occurs when the Federal Reserve reached the zero lower bound. This bound suppressed volatility in the short end of the yield curve while increasing volatility in the long end — despite lower overall volatility in financial markets. In line with previous studies, we find that announcements with regard to the Federal Reserve’s large scale asset purchases reduce longer term yields. We also quantify the effect of widely observed economic news, such as the non-farm payrolls and other items, on the yield curve