A Revided Exposition of the Methodology for Testing Payments Systems Risk
Financial economists and central bankers have been concerned for some time about the possibility of financial contagion spreading from bank to bank via interbank exposures within the payments system. The initial study of payments system risk was undertaken by Humphrey (1986) who found significant risk in the U.S. Fedwire system in the mid 1980s. Subsequent studies by Angelini, Maresca & Russo (1996), Kuussaari (1996), Northcott (2002), Furfine (2003) and Wang & Docherty (2006) have found, however, little evidence of systemic risk in the payments systems of Italy, Finland, Canada, Australia and in the U.S. inter-bank market. All of these studies employ a methodology in which the effects of a simulated failure at one institution on other institutions are examined and quantified but no formal statement of the simulation process is usually provided. One exception to this is the study by Wang & Docherty (2006) but it is possible to further refine and sharpen the exposition offered in that study. The objective of this short paper is simply to provide such an updated and refined exposition of the default simulation methodology used in payments system risk research.
payments system; real time gross settlement (RTGS); deferred net settlement (DNS); systemic risk; contaigion
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.