The Network Topology of CHAPS Sterling

27 Pages Posted: 22 Dec 2008

See all articles by Christopher Becher

Christopher Becher

Bank of England

Stephen Millard

Bank of England

Kimmo Soramaki

European Central Bank (ECB)

Date Written: November 24, 2008

Abstract

In this paper, we seek to understand the network topology of large-value interbank payment flows in the United Kingdom so as to understand better the risks associated with the system. We first examined the broad network topology of interbank payments in the United Kingdom. We found that, despite the fact that there are far fewer banks in the United Kingdom than in the United States, the structure of UK interbank payments is similar in certain respects to that of the United States, but that the tiered structure of the UK system implies rather different risk characteristics. We then looked at CHAPS and found that payment flows in CHAPS form a well-connected network whose properties change little day to day. This means that liquidity is able to flow efficiently around the network and that the network is quite resilient to shocks. This finding was backed up by examining the effects of a particular incident on the properties of the CHAPS network. In that particular instance, the effective removal of one bank for much of the day had little impact on the ability of other banks to make payments between one another.

Keywords: Network topology, CHAPS Sterling, interbank payment flows

JEL Classification: D85, G21

Suggested Citation

Becher, Christopher and Millard, Stephen and Soramaki, Kimmo, The Network Topology of CHAPS Sterling (November 24, 2008). Bank of England Working Paper No. 355. Available at SSRN: https://ssrn.com/abstract=1319277 or http://dx.doi.org/10.2139/ssrn.1319277

Christopher Becher

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Stephen Millard (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Kimmo Soramaki

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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