Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/66959 
Year of Publication: 
2008
Series/Report no.: 
Bank of Canada Discussion Paper No. 2008-11
Publisher: 
Bank of Canada, Ottawa
Abstract: 
The authors consider the liquidity efficiency of Tranche 2 of the Large Value Transfer System (LVTS T2) by examining, through an empirical analysis, some plausible strategic reactions of individual participants to a systemwide shock to available liquidity in the system. The network structure of the LVTS T2 is found to be asymmetric in terms of the patterns of out-payment flows. It is composed of three subgroups, in which participants within a subgroup are more strongly linked with each other than with participants in other subgroups. Three possible network equilibria are proposed. The equilibria are defined in terms of participant-specific collateral needs and out-payment delays, and result from different relative cost structures involving collateral costs, queuing costs, and payment delay penalties. Each of the conjectural equilibria relate to a dominant strategy for at least those participants most central in the network with respect to liquidity transfer adopted network-wide as a common strategy.
Subjects: 
Payment, clearing, and settlement systems
Financial services
Financial institutions
JEL: 
L14
L13
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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