The Role of Counterparty Risk in CHAPS Following the Collapse of Lehman Brothers

20 Pages Posted: 15 Dec 2014

See all articles by Evangelos Benos

Evangelos Benos

Rodney Garratt

Federal Reserve Banks - Federal Reserve Bank of New York

Peter Zimmerman

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Date Written: December 14, 2014

Abstract

We study the impact of the global financial crisis on CHAPS, the United Kingdom’s large value payments system, over the period 2006-2009. Core infrastructures functioned smoothly throughout the crisis and settlement banks continued to meet their payment obligations. However, payments data show that in the two months following the Lehman Brothers failure, banks did, on average, make payments at a slower pace than before the failure. We show that this slowdown is related to concerns about counterparty default risk, thereby identifying a new channel through which counterparty risk manifests itself in financial markets.

Keywords: Payments, Counterparty risk, Intraday liquidity, Credit default swap

JEL Classification: E42

Suggested Citation

Benos, Evangelos and Garratt, Rodney and Zimmerman, Peter, The Role of Counterparty Risk in CHAPS Following the Collapse of Lehman Brothers (December 14, 2014). Available at SSRN: https://ssrn.com/abstract=2538237 or http://dx.doi.org/10.2139/ssrn.2538237

Rodney Garratt (Contact Author)

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

No contact information is available for Evangelos Benos

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