A study of competing designs for a liquidity-saving mechanism |
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Authors: | Antoine Martin James McAndrews |
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Affiliation: | Federal Reserve Bank of New York, Research and Statistic, 33 Liberty Street, New York, NY 10045, United States |
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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. |
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Keywords: | E42 E58 G21 |
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