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

Short-Term Orchestral Music Training Modulates Hyperactivity and Inhibitory Control in School-Age Children: A Longitudinal Behavioural Study

Survey studies have shown that participating in music groups produces several benefits, such as discipline, cooperation and responsibility. Accordingly, recent longitudinal studies showed that orchestral music training has a positive impact on inhibitory control in school-age children. However, most of these studies examined long periods of training not always feasible for all families and institutions and focused on children’s measures ignoring the viewpoint of the teachers. Considering the crucial role of inhibitory control on hyperactivity, inattention and impulsivity, we wanted to explore if short orchestral music training would promote a reduction of these impulsive behaviors in children. This study involved 113 Italian children from 8 to 10 years of age. 55 of them attended 3 months of orchestral music training. The training included a 2-hour lesson per week at school and a final concert. The 58 children in the control group did not have any orchestral music training. All children were administered tests and questionnaires measuring inhibitory control and hyperactivity near the beginning and end of the 3-month training period. We also collected information regarding the levels of hyperactivity of the children as perceived by the teachers at both time points. Children in the music group showed a significant improvement in inhibitory control. Moreover, in the second measurement the control group showed an increase in self-reported hyperactivity that was not found in the group undergoing the music training program. This change was not noticed by the teachers, implying a discrepancy between self-reported and observed behavior at school. Our results suggest that even an intense and brief period of orchestral music training is sufficient to facilitate the development of inhibitory control by modulating the levels of self-reported hyperactivity. This research has implications for music pedagogy and education especially in children with high hyperactivity. Future investigations will test whether the findings can be extended to children diagnosed with ADHD

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

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

Bank profits ; Banks and banking

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

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

Illiquidity in the interbank payment system following wide-scale disruptions

We show how the interbank payment system can become illiquid following wide-scale disruptions. Two forces are at play in such disruptions—operational problems and changes in participants’ behavior. We model the interbank payment system as an n-player game and utilize the concept of a potential function to describe the process by which one of multiple equilibria emerges after a wide-scale disruption. If the disruption is large enough, hits a key geographic area, or hits a “too-big-to-fail” participant, then the coordination of payment processing can break down, and central bank intervention might be required to reestablish the socially efficient equilibrium. We also explore how the network topology of the underlying payment flow among banks affects the resiliency of coordination. The paper provides a theoretical framework to analyze the effects of events such as the September 11 attacks

Analyser af GPS‐data fra ”Test en elbil” og TU data

Artiklen undersøger data fra ”Test en elbil”‐projektet. Husstandes kørsel i deres konventionelle bil og den lånte elbil sammenlignes. Derudover inddrages data fra transportvaneundersøgelsen (TU) for at sammenligne kørselsmønstrene med danskernes daglige kørsel. Resultaterne bekræfter en række gængse formodning, f.eks. at elbiler benyttes til kortere ture, samt at motorveje undgås med elbiler. Derudover viser resultaterne, at kun 12,1 % af turkæderne fra TU ikke kan klares med elbiler. Resultatet bestyrker, at elbilerne har et potentiale til dagligdags transport for mange danskere, såfremt der tilbydes passende opladningsmuligheder eller andre transportmuligheder for at dække de få turkæder, som ikke kan klares med elbiler