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Priced Unsecured Intraday Overdraft Facilities

In: Payment Systems in the Financial Markets

Author

Listed:
  • Marco Rossi

    (International Monetary Fund)

Abstract

The central banks of the EU are jointly endeavouring to reform their large-value payment systems. The guiding principle is the irrevocability of settlement in all large-value fund transfer systems. Moreover, in order to anticipate the future interconnection of payment systems and to harmonise and reduce the level of risk, the central banks of the EU have thought it necessary to build an RTGS fund transfer system in every country. Despite the zero-settlement lag, real-time gross settlement does not on its own eliminate systemic risk. Indeed, congestion in RTGS systems, due to either voluntary or involuntary actions by system participants as described in Part I, may lead to a generalised payment gridlock with potential systemic consequences. Central banks can eliminate liquidity risk from RTGS systems by standing ready to supply the settlement medium as necessary in the form of explicit overdraft facilities. However, this shifts credit risk on the central bank to a degree that depends on the terms upon which its funds are granted.

Suggested Citation

  • Marco Rossi, 1998. "Priced Unsecured Intraday Overdraft Facilities," Palgrave Macmillan Books, in: Payment Systems in the Financial Markets, chapter 4, pages 57-76, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-26374-5_4
    DOI: 10.1007/978-1-349-26374-5_4
    as

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