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Measuring the Impact of a Failing Participant in Payment Systems

Author

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  • Ronald Heijmans
  • Ms. Froukelien Wendt

Abstract

Banks and financial market infrastructures (FMIs) that are not able to fulfill their payment obligations can be a source of financial instability. This paper develops a composite risk indicator to evaluate the criticality of participants in a large value payment system network, combining liquidity risk and interconnections in one approach, and applying this to the TARGET2 payment system. Findings suggest that the most critical participants in TARGET2 are other payment systems, because of the size of underlying payment flows. Some banks may be critical, but this is mainly due to their interconnectedness with other TARGET2 participants. Central counterparties and central securities depositories are less critical. These findings can be used in financial stability analysis, and feed into central bank policies on payment system access, oversight, and crisis management.

Suggested Citation

  • Ronald Heijmans & Ms. Froukelien Wendt, 2020. "Measuring the Impact of a Failing Participant in Payment Systems," IMF Working Papers 2020/081, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/081
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    Cited by:

    1. Claudiu Ioan Negrea, 2022. "Can Cyber Risk Affect Financial Stability?," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 368-376, September.
    2. Anneke Kosse & Zhentong Lu, 2022. "Transmission of Cyber Risk Through the Canadian Wholesale Payment System," Staff Working Papers 22-23, Bank of Canada.

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