Journal of Banking & Finance Vol. 34 No. 8 2010
A study of competing designs for a liquidity-saving mechanism
Abstract
We study two designs for a liquidity-saving mechanism (LSM), a queuing arrangement used with an interbank settlement system. With a balance-reactive LSM, banks can set a balance threshold below which payments are not released from the queue, an action not possible with a receipt-reactive LSM. Payments that are costly to delay are settled earlier with a receipt reactive LSM. Payments that are not costly to delay may be queued with a balance reactive LSM but are always delayed with a receipt reactive LSM. We show that either system can provide higher welfare.
- DOI
- 10.1016/j.jbankfin.2009.07.023
- Volume
- 34
- Issue
- 8
- Pages
- 1818-1826
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref