Marius Jurgilas Home Page

 Office address:
Bank of England
Threadneedle Street, London
EC2R 8AH

Completed papers:

• Liquidity-saving mechanisms in collateral-based RTGS payment systems
   

• Collateral pool settlement system
   

• Monetary Policy Under a Currency Board
   

• Interbank Markets Under Currency Boards
   

• Financial Dollarization: The Role of Banks and Interest Rates
   

• Corruption and Growth Under Weak Identification
   

• Interbank Market Under the Currency Board: Case of Lithuania

Liquidity-Saving Mechanisms in Collateral-Based RTGS Payment Systems

Abstract

This paper studies banks’ incentives for choosing the timing of their payment submissions in a collateral-based real-time gross settlement payment system and the way in which these incentives change with the introduction of a liquidity-saving mechanism (LSM). We show that an LSM allows banks to economize on collateral while also providing incentives to submit payments earlier. The reason is that, in our model, an LSM allows payments to be matched and offset, helping to settle payment cycles in which each bank must receive a payment that provides sufficient funds to allow the settlement of its own payment. In contrast to fee-based systems, for which Martin and McAndrews (2008a) show that introducing an LSM can lead to lower welfare, in our model welfare is always higher with an LSM in a collateral-based system.

-- Vini design, 2006 --
15-May-2010