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How has the Liquidity Saving Mechanism reduced banks’ intraday liquidity costs in CHAPS?

Author

Listed:
  • Davey, Nick

    (Bank of England)

  • Gray, Daniel

    (Bank of England)

Abstract

Banks require intraday liquidity to settle payments in CHAPS, the United Kingdom’s high-value sterling payment system. In April 2013, the Bank of England introduced a Liquidity Saving Mechanism (LSM) into the infrastructure used to settle CHAPS payments. The LSM has reduced CHAPS banks’ intraday liquidity requirements by around 20% (or £4 billion). The LSM has reduced incentives for banks to adopt adverse behaviours to economise on their intraday liquidity requirements, thus enhancing the resilience and efficiency of CHAPS.

Suggested Citation

  • Davey, Nick & Gray, Daniel, 2014. "How has the Liquidity Saving Mechanism reduced banks’ intraday liquidity costs in CHAPS?," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 180-189.
    • Handle: RePEc:boe:qbullt:0142
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    References listed on IDEAS

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    1. Rehlon, Amandeep & Nixon, Dan, 2013. "Central counterparties: what are they, why do they matter and how does the Bank supervise them?," Bank of England Quarterly Bulletin, Bank of England, vol. 53(2), pages 147-156.
    2. Dent , Andrew & Dison, Will, 2012. "The Bank of England’s Real-Time Gross Settlement infrastructure," Bank of England Quarterly Bulletin, Bank of England, vol. 52(3), pages 234-243.
    3. Farag, Marc & Harland , Damian & Nixon, Dan, 2013. "Bank capital and liquidity," Bank of England Quarterly Bulletin, Bank of England, vol. 53(3), pages 201-215.
    4. Morten L. Bech, 2008. "Intraday liquidity management: a tale of games banks play," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 7-23.
    5. Norman, Ben, 2010. "Financial Stability Paper No 7: Liquidity Saving in Real-Time Gross Settlement Systems - an Overview," Bank of England Financial Stability Papers 7, Bank of England.
    6. Murphy, Emma & Senior, Stephen, 2013. "Changes to the Bank of England," Bank of England Quarterly Bulletin, Bank of England, vol. 53(1), pages 20-28.
    7. Finan, Kevin & Lasaosa, Ana & Sunderland, Jamie, 2013. "Tiering in CHAPS," Bank of England Quarterly Bulletin, Bank of England, vol. 53(4), pages 371-378.
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    Cited by:

    1. De Caux, Robert & Brede, Markus & McGroarty, Frank, 2016. "Payment prioritisation and liquidity risk in collateralised interbank payment systems," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 41(C), pages 139-150.
    2. Kelsey, Ed & Rickenbach, Simon, 2014. "Enhancing the resilience of the Bank of England’s Real-Time Gross Settlement infrastructure," Bank of England Quarterly Bulletin, Bank of England, vol. 54(3), pages 316-320.
    3. Denbee, Edward & Garratt, Rodney & Zimmerman, Peter, 2014. "Variations in liquidity provision in real-time payment systems," Bank of England working papers 513, Bank of England.
    4. Rodney J. Garratt, 2022. "An Application of Shapley Value Cost Allocation to Liquidity Savings Mechanisms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(6), pages 1875-1888, September.
    5. Christopher McMahon & Donald McGillivray & Ajit Desai & Francisco Rivadeneyra & Jean-Paul Lam & Thomas Lo & Danica Marsden & Vladimir Skavysh, 2024. "Improving the Efficiency of Payments Systems Using Quantum Computing," Management Science, INFORMS, vol. 70(10), pages 7325-7341, October.
    6. Bank for International Settlements, 2015. "Central bank operating frameworks and collateral markets," CGFS Papers, Bank for International Settlements, number 53.
    7. Christopher McMahon & Donald McGillivray & Ajit Desai & Francisco Rivadeneyra & Jean-Paul Lam & Thomas Lo & Danica Marsden & Vladimir Skavysh, 2024. "Improving the Efficiency of Payments Systems Using Quantum Computing," Management Science, INFORMS, vol. 70(10), pages 7325-7341, October.
    8. Bholat, David, 2015. "Big data and central banks," Bank of England Quarterly Bulletin, Bank of England, vol. 55(1), pages 86-93.

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