Variations in Liquidity Provision in Real-Time Payment Systems

19 Pages Posted: 18 Oct 2014 Last revised: 22 Jan 2015

See all articles by Edward Denbee

Edward Denbee

Bank of England

Rodney Garratt

Federal Reserve Banks - Federal Reserve Bank of New York

Peter Zimmerman

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: October 17, 2014

Abstract

We describe methods for measuring liquidity provision that can be applied to real-time gross settlement payment systems. Using data from CHAPS, the UK large-value payment system, we find that smaller banks tend to provide more liquidity than larger banks, relative to their payment flows. We use a Gini coefficient to measure these variations in liquidity provision between banks, and observe that the variations increase following the collapse of Lehman Brothers. It can be difficult to tell whether the variations are intentional or whether they occur due to external factors that are beyond the control of the individual banks. We use a recombinant approach to detect instances where observed patterns of liquidity provision are unlikely to have occurred absent of some behavioural or structural factors, such as differences in banks’ business models. Our results suggest that the variations in liquidity provision are larger than would be expected from truly random payment flows.

Keywords: Liquidity, payment systems, Gini coefficient

JEL Classification: E42

Suggested Citation

Denbee, Edward and Garratt, Rodney and Zimmerman, Peter, Variations in Liquidity Provision in Real-Time Payment Systems (October 17, 2014). Bank of England Working Paper No. 513, Available at SSRN: https://ssrn.com/abstract=2511272 or http://dx.doi.org/10.2139/ssrn.2511272

Edward Denbee (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Rodney Garratt

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Peter Zimmerman

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

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