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The Effects of Settlement Methods on Liquidity Needs: Empirical Study based on Funds Transfer Data

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  • Saiki Tsuchiya

    (Bank of Japan)

Abstract

The level of intraday liquidity needed for settlement varies according to settlement methods. This paper is an empirical study based on funds transfer data in Japan of the effects of the shift from deferred net settlement (DNS) to real time gross settlement (RTGS) with liquidity-saving features (LSF) on the liquidity for settlements of payments among financial institutions. The study has revealed the following: (1) The extent to which liquidity financial institutions put into their accounts for settlement has increased due to the shift to RTGS; (2) the level of the liquidity which was not used for settlements; (3) the liquidity-saving effects of the LSF in an accommodative monetary environment under the zero-interest rate policy; (4) the extent to which the liquidity-saving effects have increased by the uniform application of LSF to different types of transactions; and (5) the extent to which the collateral requirements have declined as a result of the reduction in transactions settled on a DNS basis.

Suggested Citation

  • Saiki Tsuchiya, 2013. "The Effects of Settlement Methods on Liquidity Needs: Empirical Study based on Funds Transfer Data," Bank of Japan Working Paper Series 13-E-2, Bank of Japan.
    • Handle: RePEc:boj:bojwps:13-e-2
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    File URL: http://www.boj.or.jp/en/research/wps_rev/wps_2013/data/wp13e02.pdf
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    References listed on IDEAS

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    1. Angelini, Paolo, 1998. "An analysis of competitive externalities in gross settlement systems," Journal of Banking & Finance, Elsevier, vol. 22(1), pages 1-18, January.
    2. Enghin Atalay & Antoine Martin & James J. McAndrews, 2010. "Quantifying the benefits of a liquidity-saving mechanism," Staff Reports 447, Federal Reserve Bank of New York.
    3. Marius Jurgilas & Antoine Martin, 2013. "Liquidity-saving mechanisms in collateral-based RTGS payment systems," Annals of Finance, Springer, vol. 9(1), pages 29-60, February.
    4. Payment and Settlement Systems Department, 2009. "BOJ-NET Funds Transfers after the Implementation of Phase 1 of the Next-Generation RTGS Project," Bank of Japan Review Series 09-E-4, Bank of Japan.
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    Cited by:

    1. Tong Mu & He Yi, 2017. "Topology of Complex Networks and Demand of Intraday Liquidity: Based on the Real-Time Gross Settlement System," Central European Economic Journal, Sciendo, vol. 2(49), pages 50-61, December.

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