Wholesale Payments and Financial Discipline, Efficiency, and Liquidity
IMF Working Papers, November 1, 1997
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Bibliographic details
- Authors: D. F. I. Folkerts-Landau
- Published: November 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451857191.001
Summary of central argument
- Properly designed wholesale payments system can make a significant contribution to enhancing market discipline in the financial sector, reducing the risk of systemic disturbance and permitting a less extensive safety net for financial institutions.
- The objective of the reforms discussed is to achieve a reduction of the credit risk associated with the growth in intraday credit exposures that arises in net settlement systems and in real-time gross systems when the central bank provides daylight overdrafts.
Findings on intraday credit and system structure
- Intraday payments-related credit in net settlement systems has been reduced by restructuring payment systems into real-time gross settlement systems with collateralized overdrafts.
- In the existing real-time gross settlement systems, the risk-abatement program currently in effect has taken the form of caps and charges on uncollateralized daylight credit.
Policy implications and mechanisms
- Restructuring net settlement systems into real-time gross settlement systems with collateralized overdrafts is presented as a mechanism to lower intraday credit risk.
- Implementing caps and charges on uncollateralized daylight credit in real-time gross settlement systems is presented as a complementary risk-abatement program.
- The combined effect of these reforms is intended to enhance market discipline, reduce systemic risk, and allow for a less extensive safety net for financial institutions.
Subject areas and keywords
- Subjects: Asset and liability management, Banking, Financial institutions, Financial markets, Government securities, Liquidity, Payment systems, Real time gross settlement systems, Securities
- Keywords: Banking, credit exposure, daylight overdraft, Europe, Fed from Treasury security trading, Global, government securities, interbank payment, Liquidity, Monetary Policy, overdraft charge, payment system, payment system charge, Payment Systems, payment traffic, payments problem, Real time gross settlement systems, reform effort, Securities, securities transaction, treasury securities, Treasury security liquidity, wholesale payment system, WP
Content in this bundle
- Wholesale Payments and Financial Discipline, Efficiency, and Liquidity -WP/97/154