Analysis of the Payment System of the National Bank of Serbia – simulation-based approach

Using the simulation-based approach, this paper aims to investigate the influence of operational problems which occur at two most important prticipants on the system as a whole as well as on the other participants of the payment system of the National Bank of Serbia. To the best of our knowledge, this is the first paper which examines, by use of simulations, the consequences of operational problems ocurring at the participants of the payment system of the National Bank of Serbia. Two scenarios were examined. In the first scenario, the most important participant is facing operational problems, while in the second scenario operational problems at two most important participants were supposed. Restrictively designed scenarios show that operational problems at the most important participants can seriously affect other participants' ability to settle their payments. In addition, in order to capture possible behavioral reactions by other participants, we investigate whether the application of the stop-sending rule can reduce the magnitude of contagion. We find that the application of this rule can substantially reduce the effects of the operational problems. However, the rule also reduces the number of transactions in the system as well as the total turnover. At the end, we determined the probabilty of defaults for each account used in our analysis.