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Central bank policy making in competing payment systems

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  • David Vanhoose

Abstract

This paper analyzes the interaction between two payment systems. Administrators of both systems establish intraday credit interest fees, caps, and collateral requirements. Analysis of the model indicates that if a central bank does not take into account the effects that its policies have on its share of payment system transactions, then its efforts to contain risks associated with daylight overdrafts on its wire system will require a loss in its share of total transactions volume. If it does recognize the potential loss in its share of payments, then socially optimal policy instrument settings are unlikely to emerge. Copyright International Atlantic Economic Society 2000

Suggested Citation

  • David Vanhoose, 2000. "Central bank policy making in competing payment systems," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 28(2), pages 117-139, June.
    • Handle: RePEc:kap:atlecj:v:28:y:2000:i:2:p:117-139
    DOI: 10.1007/BF02298356
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    References listed on IDEAS

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    1. Edward J. Stevens, 1989. "Removing the hazard of Fedwire daylight overdrafts," Economic Review, Federal Reserve Bank of Cleveland, vol. 25(Q II), pages 2-10.
    2. C. H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," BIS Working Papers 70, Bank for International Settlements.
    3. Dirk Schoenmaker & Mr. Peter M. Garber & Mr. D. F. I. Folkerts-Landau, 1996. "The Reform of Wholesale Payment Systems and its Impacton Financial Markets," IMF Working Papers 1996/037, International Monetary Fund.
    4. Kahn, Charles M & Roberds, William, 1998. "Payment System Settlement and Bank Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 845-870.
    5. Craig H. Furfine & Jeff Stehm, 1996. "Analyzing alternative daylight credit policies in real-time gross settlement systems," Proceedings 516, Federal Reserve Bank of Chicago.
    6. Angelini, P., 1996. "Are Banks Risk-Averse? A Note on the Timing of Operations in the Interbank Market," Papers 266, Banca Italia - Servizio di Studi.
    7. Douglas D. Evanoff, 1988. "Daylight overdrafts: rationale and risks," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 12(May), pages 18-29.
    8. Sujit Chakravorti, 1996. "Analysis of systemic risk in the payments system," Financial Industry Studies Working Paper 96-2, Federal Reserve Bank of Dallas.
    9. R. Alton Gilbert, 1989. "Payments system risk: what is it and what will happen if we try to reduce it?," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 3-17.
    10. Kopecky, Kenneth J. & VanHoose, David, 2004. "Bank capital requirements and the monetary transmission mechanism," Journal of Macroeconomics, Elsevier, vol. 26(3), pages 443-464, September.
    11. Craig H. Furfine, 1999. "Interbank exposures: quantifying the risk of contagion," Proceedings 633, Federal Reserve Bank of Chicago.
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    Cited by:

    1. Holthausen, Cornelia & Rochet, Jean-Charles, 2006. "Efficient Pricing of Large Value Interbank Payment Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1797-1818, October.
    2. Holthausen, Cornelia & Rochet, Jean-Charles, 2006. "Efficient Pricing of Large Value Interbank Payment Systems," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1797-1818, October.

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