Measuring the Impact of a Failing Participant in Payment Systems

June 5, 2020

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Format: Chicago

Fernanda Brollo, and Froukelien Wendt. Measuring the Impact of a Failing Participant in Payment Systems, (USA: International Monetary Fund, 2020) accessed December 22, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Banks and financial market infrastructures (FMIs) that are not able to fulfill their payment obligations can be a source of financial instability. This paper develops a composite risk indicator to evaluate the criticality of participants in a large value payment system network, combining liquidity risk and interconnections in one approach, and applying this to the TARGET2 payment system. Findings suggest that the most critical participants in TARGET2 are other payment systems, because of the size of underlying payment flows. Some banks may be critical, but this is mainly due to their interconnectedness with other TARGET2 participants. Central counterparties and central securities depositories are less critical. These findings can be used in financial stability analysis, and feed into central bank policies on payment system access, oversight, and crisis management.

Subject: Asset and liability management, Banking, Financial markets, Financial regulation and supervision, Large value payment systems, Liquidity, Liquidity risk, Payment systems, PFM information systems, Public financial management (PFM)

Keywords: Customer payment, Financial market infrastructures, Financial stability, Flows of FMIs need, FMI participant, FMI supervisor, FMI type, Global, Large value payment systems, Liquidity, Liquidity risk, Oversight, Payment flow, Payment instruction, Payment obligation, Payment subcategory, Payment system network, Payment system oversight, Payment system participant, Payment systems, Payment transaction, Payment transaction data, PFM information systems, Settlement bank, Systemic impact, TARGET2, Transaction data, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/081
Stock No:

WPIEA2020081
ISBN:

9781513545080
ISSN:

1018-5941

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