Performance and resilience to liquidity disruptions in interdependent RTGS payment systems

Performance and resilience to liquidity disruptions in interdependent RTGS payment systems Fabien Renault 1 Morten L. Bech 2 Walt Beyeler 3 Robert J. Glass 3 Kimmo Soram ä ki 4 1 Banque de France 2 Federal Reserve Bank of New York 3 Sandia National Laboratories 4 Helsinki University of Technology, www.soramaki.net Joint Banque de France / European Central Bank conference on "Liquidity in interdependent transfer systems" Paris, 9 June 2008 The views expressed in this presentation are those of the authors and do not necessarily reflect those of their respective institutions

Motivation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

[object Object],[object Object],[object Object],[object Object],Motivation System-based Interdependencies System System Financial Institution Institution-based Interdependencies System System IT service provider Environmental Interdependencies System System Dealt with in this presentation

[object Object],[object Object],[object Object],[object Object],[object Object],Coupled RTGS model Model description RTGS € Extended core Core Smaller € local players E 20 E 4 E 21 E 22 E 5 E 23 E 6 E 3 E 1 E 2 E i E 97 RTGS $ Core Extended core Smaller $ local players A 3 A 1 A 2 A 5 A 6 A 23 A 21 A 4 A 22 A 20 A i A 97 E 3 E 1 E 2 A 3 A 2 A 1 FX market

[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Coupled RTGS model Model description

Correlation dynamics High liquidity PvP or non-PvP Correlation: 0.22 (institution-based interdependency) Low liquidity non-PvP Correlation: -0.02 (none) Low liquidity PvP Correlation: 0.83 (system-based interdependency)

Summary of main results ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Operational disruption PvP High Liquidity A B C D E F G H

Operational disruption ,[object Object],[object Object],A B C D E F G H

Operational disruption ,[object Object],[object Object],[object Object],A B C D E F G H

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E F G H

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E F G H

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E F G H

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E F G H

Operational disruption PvP Low Liquidity A B C D E

Operational disruption ,[object Object],[object Object],A B C D E

Operational disruption ,[object Object],[object Object],[object Object],A B C D E

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E

Operational disruption Non-PvP High Liquidity A B C D E F G

Operational disruption ,[object Object],[object Object],[object Object],A B C D E F G

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E F G

Operational disruption Non-PvP Low Liquidity A B C D E F

Operational disruption ,[object Object],[object Object],A B C D E F

Operational disruption ,[object Object],[object Object],[object Object],A B C D E F

Operational disruption ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],A B C D E F

Operational disruption Non-PvP High Liquidity, FX exposures

Operational disruption ,[object Object],[object Object]

Operational disruption ,[object Object],[object Object],[object Object]

Cross-currency channels of disruption propagation ,[object Object]

Cross-currency channels of disruption propagation ,[object Object],[object Object],[object Object]

Cross-currency channels of disruption propagation ,[object Object],[object Object],[object Object],[object Object]

Cross-currency channels of disruption propagation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Cross-currency channels of disruption propagation ,[object Object],[object Object]

Cross-currency channels of disruption propagation ,[object Object],[object Object],This leads to RTGS $ being eventually deprived of FX activity, even in the non-PvP case

Cross-currency channels of disruption propagation ,[object Object],[object Object],[object Object],[object Object],[object Object]

Cross-currency channels of disruption propagation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Conclusions ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Performance and resilience to liquidity disruptions in interdependent RTGS payment systems

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