How Has the Liquidity Saving Mechanism Reduced Banks’ Intraday Liquidity Costs in CHAPS?

10 Pages Posted: 10 Jul 2014

Date Written: June 16, 2014

Abstract

Banks require intraday liquidity to settle payments in CHAPS, the United Kingdom’s high-value sterling payment system. In April 2013, the Bank of England introduced a Liquidity Saving Mechanism (LSM) into the infrastructure used to settle CHAPS payments. The LSM has reduced CHAPS banks’ intraday liquidity requirements by around 20% (or £4 billion). The LSM has reduced incentives for banks to adopt adverse behaviours to economise on their intraday liquidity requirements, thus enhancing the resilience and efficiency of CHAPS.

Suggested Citation

Davey, Nick and Gray, Daniel, How Has the Liquidity Saving Mechanism Reduced Banks’ Intraday Liquidity Costs in CHAPS? (June 16, 2014). Bank of England Quarterly Bulletin 2014 Q2, Available at SSRN: https://ssrn.com/abstract=2464096

Nick Davey

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Daniel Gray (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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