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The impact of de-tiering in the United Kingdom’s large-value payment system

Author

Listed:
  • Benos, Evangelos

    (Bank of England)

  • Ferrara, Gerardo

    (Bank of England)

  • Gurrola-Perez, Pedro

    (Bank of England)

Abstract
Large-value payment systems (LVPS) often have a tiered structure where only a limited number of banks have direct access to these systems and every other institution accesses the system through agency arrangements with the direct participants. As such, a high degree of tiering is often perceived as being associated with credit and operational risks. In this paper we use data around five recent de-tiering events in the United Kingdom’s LVPS(CHAPS), to assess the impact of de-tiering on these risks as well as on liquidity usage. We find that the impact of de-tiering is largest on credit risk, where average intraday exposures between first and second-tier banks drop by anywhere between £0.3 billion and £1.5 billion per bank, while the cost of insuring against losses arising from these exposures drops by about £4 million to £19 million per bank, per year. On the other hand, the impact of these de-tiering events on operational risk and liquidity usage appears to be economically small.

Suggested Citation

  • Benos, Evangelos & Ferrara, Gerardo & Gurrola-Perez, Pedro, 2017. "The impact of de-tiering in the United Kingdom’s large-value payment system," Bank of England working papers 676, Bank of England.
    • Handle: RePEc:boe:boeewp:0676
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    References listed on IDEAS

    as
    1. Klaus Abbink & Ronald Bosman & Ronald Heijmans & Frans van Winden, 2017. "Disruptions in Large-Value Payment Systems: An Experimental Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 13(4), pages 63-95, December.
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    18. Klaus Abbink & Ronald Bosman & Ronald Heijmans & Frans van Winden, 2017. "Disruptions in Large-Value Payment Systems: An Experimental Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 13(4), pages 63-95, December.
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    Cited by:

    1. Jan Paulick & Ron Berndsen & Martin Diehl & Ronald Heijmans, 2024. "No more tears without tiers? The impact of indirect settlement on liquidity use in TARGET2," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(2), pages 425-458, May.

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    More about this item

    Keywords

    Payment systems; tiering;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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