nep-ban New Economics Papers
on Banking
Issue of 2015‒06‒27
twenty-one papers chosen by
Christian Calmès, Université du Québec en Outaouais

  1. Macroprudential regulation and bank performance:Does ownership matter? By Ghosh, Saibal
  2. “Bank risk behavior and connectedness in EMU countries” By Manish K. Singh; Marta Gómez-Puig; Simón Sosvilla-Rivero
  3. Do exposures to sagging real estate, subprime or conduits abroad lead to contraction and flight to quality in bank lending at home? By Ongena, Steven; Tümer-Alkan, Günseli; von Westernhagen, Natalja
  4. An Inter-Country Analysis on Growth of Non-Bank Financial Intermediaries By K.R. Shanmugam
  5. Determinants and Valuation Effects of the Home Bias in European Banks' Sovereign Debt Portfolios By Horváth, Bálint; Huizinga, Harry; Ioannidou, Vasso
  6. The Spectral Stress VaR (SSVaR) By Dominique Guegan; Bertrand K Hassani; Kehan Li
  7. Uncertainty in an Interconnected Financial System, Contagion, and Market Freezes By Mei Li; Frank Milne; Junfeng Qiu
  8. The Effects of Prudential Supervision on Bank Resiliency and Profits in a Multi-Agent Setting By Alexandru Monahov
  9. Stress Test of Banks in India: A VAR Approach By Sreejata Banerjee; Divya Murali
  10. Central Bank Screening, Moral Hazard, and the Lender of Last Resort Policy By Mei Li; Frank Milne; Junfeng Qiu
  11. Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach By Paolo Gelain; Kevin J. Lansing; Gisle J. Natvik
  12. Macroeconomic Effects of Banking Sector Losses across Structural Models By Guerrieri, Luca; Iacoviello, Matteo; Covas, Francisco; Driscoll, John C.; Kiley, Michael T.; Jahan-Parvar, Mohammad; Queraltó, Albert; Sim, Jae W.
  13. [WTO Case Review Series no. 13] <i>China—Certain Measures Affecting Electronic Payment Services</i> (WT/DS413): Vulnerability of normative structure of GATS (Japanese) By KUNIMATSU Maki
  14. Fire-Sale FDI or Business as Usual? By Ron Alquist; Rahul Mukherjee; Linda L. Tesar
  15. Slow capital, fast prices: Shocks to funding liquidity and stock price reversals By Gissler, Stefan
  16. Coupling direction of the European Banking and Insurance sectors using inter-system recurrence networks By Peter Martey Addo
  17. Are the shocks obtained from SVAR fundamental? By Hamidi Sahneh, Mehdi
  18. Securitization and Economic Activity: The Credit Composition Channel By Bertay, Ata Can; Gong, Di; Wagner, Wolf
  19. The Swedish Financial System By Alexis Stenfors
  20. A Schumpeterian Growth Model with Financial Intermediaries By Miho Sunaga
  21. Changes in Payment Timing in Canada’s Large Value Transfer System By Nellie Zhang

  1. By: Ghosh, Saibal
    Abstract: Employing data on Indian banks for 1992-2012, the article examines the impact of macroprudential measures on bank performance. It finds that state-owned banks tend to have lower profitability and soundness than their private counterparts. Next, it tests whether such differentials between state-owned and private banks are driven by macroprudential measures; it finds strong support for this hypothesis.
    Keywords: banking; macroprudential; capital adequacy; loan classification; provisioning; ownership; India
    JEL: G21 L51 P52
    Date: 2013–09–25
  2. By: Manish K. Singh (Faculty of Economics, University of Barcelona); Marta Gómez-Puig (Faculty of Economics, University of Barcelona); Simón Sosvilla-Rivero (Complutense Institute of International Economics, Universidad Complutense de Madrid)
    Abstract: Given the structural differences in banking sector and financial regulation at country level in European Economic and Monetary Union (EMU), this paper tries to estimate the banking sector risk behavior at country level. Based on contingent claim literature, it computes “Distance-to-default (DtD)” at bank level and analyses the aggregate series at country level for a representative set of banks over the period 2004-Q4 to 2013-Q2. The indices provide an intuitive, forward-looking and timely risk measure having strong correlations with national/regional market sentiment indicators. An underlying trend exists but causality tests suggest no systemic component. Cross-sectional differences in DtD suggests fragility in EMU countries 12-18 months prior to the crisis and better predictive ability than the regulatory index based on large and complex banking institutions at European level. Furthermore, we explore the reasons for this divergence using VAR estimates.
    Keywords: contingent claim analysis, Distance-to-default, banking risk JEL classification: G01, G13, G21, G28
    Date: 2015–06
  3. By: Ongena, Steven; Tümer-Alkan, Günseli; von Westernhagen, Natalja
    Abstract: We investigate how differential exposures by German banks to the US real estate market during the recent financial crisis affect their corporate lending in Germany. Using unique bank-level exposure data, we distinguish between three different types of bank exposures, i.e. direct exposure to the US real estate sector, direct exposure to subprime lenders in the US, and indirect exposure through the liquidity provided to ABCP conduits. We find that banks with a higher exposure to the US real estate sector and to conduits cut their lending to German firms by more following a decrease in US home prices than banks that do not have such an exposure. Moreover, these banks then also shift their lending to industry-region combinations with lower insolvency ratios. Hence possible losses abroad shift bank lending at home, and the size of this effect depends on the type and the degree of exposure the bank has.
    Keywords: financial sector,bank lending,real estate exposure,subprime,conduits
    JEL: G01 G21 R00
    Date: 2015
  4. By: K.R. Shanmugam (Madras School of Economics)
    Abstract: Non-Bank Financial Institutions (NBFIs) or shadow banks are internationally recognized as financial intermediaries. There have been debates in the literature on the exact relation (complementary or substitutability) between non-banking and banking sectors and between financial sector development/liberalization and economic growth. This study analyzes these issues using the data from 25 major nations in the world during 2006-13 and panel data methodology. Results of the study suggest that (i) NBFIs hold nearly 22 percent of the total financial system assets; (ii) both credit risk and funding risk associated with interconnectedness between banks and non-banks sectors was larger for NBFIs than for banks in almost all nations; (iii) banks and Non-banking institutions are competing each other; (iv) financial sector represented by banking sector plays a significant role in determining GDP growth of nations, thereby confirming the Schumpeterian idea of finance spurring growth and (v) the economic growth and non-banking sectors growth are positively related, supporting the Robinsonian conjecture of economic growth leading to more dynamic financial sector development. The NBFI regulation is generally underdeveloped in almost all countries. The most nations do not have policy instruments that are specially designed for dealing with systemic risks associated with NBFIs. A perpetual challenge for financial regulators and supervisors in various nations is to choose appropriate regulatory mechanism suited to their countries.
    Keywords: Non-Bank Financial Sector, Regulation, Systemic Risk, Global Economies
    JEL: E44 G21
    Date: 2015–04
  5. By: Horváth, Bálint; Huizinga, Harry; Ioannidou, Vasso
    Abstract: We document that large European banks hold sovereign debt portfolios heavily biased toward domestic government debt. This bias is stronger if the sovereign is risky and shareholder rights are strong, as evidence of a risk-shifting explanation of the home bias. In addition, the bias is stronger if the sovereign is risky and the government has positive ownership in the bank, as evidence of a government pressure channel. The home bias is positively valued by the stock market, as reflected by a positive association between the home bias and Tobin’s q. The home bias premium declines with domestic sovereign risk, but less so for highly leveraged banks, suggesting that both the risk-shifting and government pressure channels are operative. The European Central Bank’s large injections of liquidity in December 2011 and February 2012 reduced the marginal value of the home bias by allowing banks to expand their exposure to domestic government debt.
    Keywords: Bank valuation; Government ownership; Home bias; LTRO; Moral suasion; Risk-shifting; Shareholder rights; Sovereign debt crisis
    JEL: F3 G01 G14 G15 G21 G28
    Date: 2015–06
  6. By: Dominique Guegan (Centre d'Economie de la Sorbonne); Bertrand K Hassani (Grupo Santander et Centre d'Economie de la Sorbonne); Kehan Li (Centre d'Economie de la Sorbonne)
    Abstract: One of the key lessons of the crisis which began in 2007 has been the need to strengthen the risk coverage of the capital framework. In response, the Basel Committee in July 2009 completed a number of critical reforms to the Basel II framework which will raise capital requirements for the trading book and complex securitisation exposures, a major source of losses for many international active banks. One of the reforms is to introduce a stressed value-at-risk (VaR) capital requirement based on a continuous 12-month period of significant financial stress (Basel III (2011) [1]. However the Basel framework does not specify a model to calculate the stressed VaR and leaves it up to the banks to develop an appropriate internal model to capture material risks they face. Consequently we propose a forward stress risk measure “spectral stress VaR” (SSVaR) as an implementation model of stressed VaR, by exploiting the asymptotic normality property of the distribution of estimator of VaRp. In particular to allow SSVaR incorporating the tail structure information we perform the spectral analysis to build it. Using a data set composed of operational risk factors we fit a panel of distributions to construct the SSVaR in order to stress it. Additionally we show how the SSVaR can be an indicator regarding the inner model robustness for the bank
    Keywords: Value at Risk; Asymptotic theory; Distribution; Spectral analysis; Stress; Risk measure; Regulation
    JEL: C1 C6
    Date: 2015–06
  7. By: Mei Li (Department of Economics and Finance, University of Guelph); Frank Milne (Department of Economics, Queen’s University); Junfeng Qiu (Economics and Management Academy, Central University of Finance and Economics)
    Abstract: This paper studies contagion and market freezes caused by uncertainty in interconnections among financial institutions, and provides theoretical guidance for central banks to tackle them. We establish a formal model to demonstrate that in a financial system where financial institutions are interconnected, a negative shock to an individual financial institution could spread to other financial institutions and cause market freezes in which creditors charge a higher interest rate, or even refuse to roll over their loans, due to their uncertainty about how the financial institutions are interconnected. In the extreme case, we find that a systematic collapse occurs in which all the financial institutions are run by their creditors, and are forced to liquidate their long-term assets and to recall their interbank loans. Our model reveals that a credible central bank with perfect information about the financial network structure can effectively check contagion. However, when the central bank does not have perfect information, more information provided by a central bank to narrow down the number of financial institutions connected to the stressed one does not necessarily improve social welfare, because social welfare losses caused by contagion do not monotonically increase in the number of financial institutions interconnected in the system. Given that the central bank does not have perfect information, it will have to resort to the bailout policy and the Lender of Last Resort (LOLR) policy to check contagion. In particular, our model reveals that the optimal LOLR policy is the unlimited central bank loans at the riskless rate. Moreover, limited central bank loans with an interest rate lower than the market rate will help alleviate market freezes and improve social welfare.
    Keywords: Interconnection; Market Freezes; Contagion; Financial Crises
    JEL: D82 G2
    Date: 2015
  8. By: Alexandru Monahov (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: This article studies the effects of prudential supervision on bank resiliency and profitability within an agent-based framework that allows us to simulate persistent crisis conditions. It focuses on the stabilizing effect of prudential supervision introduced alongside three "traditional" regulatory instruments: a norm, a market-based CDS insurance mechanism and a tax in the form of a bail-in instrument. The results show that: (i) supervision enhances the regulatory instruments’ efficiency, (ii) the regulatory norm can postpone the bank’s default, but not avoid it, (iii) the CDS mechanism only produces positive results on resiliency and profitability if the regulator supervises, and (iv) the tax bail-in instrument is the most powerful tool in the regulator’s arsenal as it potentiates profitable bank operation under long-lasting crisis conditions.
    Keywords: Prudential supervision, Banking system supervision, Financial institution regulation, Agent Based Modeling, Multi-Agent Simulation
    JEL: C63 E65 G28
    Date: 2015–06
  9. By: Sreejata Banerjee (Madras School of Economics); Divya Murali (Research Associate at Athenainfonomics)
    Abstract: Banking crisis have serious repercussion causing loss of household savings and decline in confidence and soundness in the banking sector. The present study is an attempt to analyze this aspect in light of the challenges of financial sector reforms faced by banks in India . Stress test of banks operating in India is undertaken to identify factors that adversely influence banks’ non-performing assets (NPA) which is the key indicator of banks’ soundness. We examine the response of bank’s NPA to unexpected shocks from external and domestic macroeconomic factors namely interest rate, exchange rate, GDP. NPAs are regressed in Vector Auto Regressive model on a set of macroeconomic variables with quarterly data from 1997 to 2012 to examine whether there is divergence in the response across the four types ownership: public, old private, new private, and foreign. Granger Causality, IRF and FEVD are used to verify the VAR results. Interest rate significantly impairs asset quality for all banks in two-way causality. Exchange rate, net foreign institutional investor flow and deposits Granger cause public banks’ NPA. GDP gap Granger cause NPA in old private and foreign banks. IRF show banks are vulnerable to inflation shock requiring 8 quarters to stabilize. The stress test clearly demonstrates that all banks need to re-capitalize and improve asset quality.
    Keywords: Macro Stress test, Non-performing Assets, Impulse response function, Vector Auto Regression, Granger Causality
    JEL: C33 E32 E37
    Date: 2015–04
  10. By: Mei Li (Department of Economics and Finance, University of Guelph); Frank Milne (Department of Economics, Queen’s University); Junfeng Qiu (Economics and Management Academy, Central University of Finance and Economics)
    Abstract: This paper establishes a theoretical model to examine the LOLR policy when a central bank can distinguish solvent banks from insolvent ones only imperfectly. The major results that our model produces are as follows: (1) The pooling equilibria in which, on one hand, all the banks borrow from the central bank and, on the other hand, all the banks do not borrow from the central bank could exist given certain market beliefs off the equilibrium path. However, neither equilibrium is socially efficient because insolvent banks will continue to hold their unproductive assets, rather than efficiently liquidating them. (2) Higher precision in central bank screening will improve social welfare not only by identifying insolvent banks and forcing them to efficiently liquidate their assets, but also by reducing moral hazard and deterring banks from choosing risky assets in the first place. (3) If a central bank can commit to a specific precision level before the banks choose their assets, rather than conducting a discretionary LOLR policy, it will choose a higher precision level to reduce moral hazard and will attain higher social welfare.
    Keywords: Central Bank Screening; Moral Hazard; Lender of Last Resort
    JEL: E58 G20
    Date: 2015
  11. By: Paolo Gelain (Norges Bank (Central Bank of Norway)); Kevin J. Lansing (Federal Reserve Bank San Francisco); Gisle J. Natvik (BI Norwegian Business School)
    Abstract: We use a simple quantitative asset pricing model to "reverse-engineer" the sequences of stochastic shocks to housing demand and lending standards that are needed to exactly replicate the boom-bust patterns in U.S. household real estate value and mortgage debt over the period 1995 to 2012. Conditional on the observed paths for U.S. disposable income growth and the mortgage interest rate, we consider four different specifications of the model that vary according to the way that household expectations are formed (rational versus moving average forecast rules) and the maturity of the mortgage contract (one-period versus long-term). We find that the model with moving average forecast rules and long-term mortgage debt does best in plausibly matching the patterns observed in the data. Counterfactual simulations show that shifting lending standards (as measured by a loan-to-equity limit) were an important driver of the episode while movements in the mortgage interest rate were not. All models deliver rapid consumption growth during the boom, negative consumption growth during the Great Recession, and sluggish consumption growth during the recovery when households are deleveraging.
    Keywords: Housing bubbles, Mortgage debt, Borrowing constraints, Lending standards, Macroprudential policy
    JEL: D84 E32 E44 G12 O40 R31
    Date: 2015–06–16
  12. By: Guerrieri, Luca (Board of Governors of the Federal Reserve System (U.S.)); Iacoviello, Matteo (Board of Governors of the Federal Reserve System (U.S.)); Covas, Francisco (Board of Governors of the Federal Reserve System (U.S.)); Driscoll, John C. (Board of Governors of the Federal Reserve System (U.S.)); Kiley, Michael T. (Board of Governors of the Federal Reserve System (U.S.)); Jahan-Parvar, Mohammad (Board of Governors of the Federal Reserve System (U.S.)); Queraltó, Albert (Board of Governors of the Federal Reserve System (U.S.)); Sim, Jae W. (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: The macro spillover effects of capital shortfalls in the financial intermediation sector are compared across five dynamic equilibrium models for policy analysis. Although all the models considered share antecedents and a methodological core, each model emphasizes different transmission channels. This approach delivers "model-based confidence intervals" for the real and financial effects of shocks originating in the financial sector. The range of outcomes predicted by the five models is only slightly narrower than confidence intervals produced by simple vector autoregressions.
    Keywords: Bank losses; banks; capital requirements; DSGE models
    JEL: E42 E44 E47
    Date: 2015–06–03
  13. By: KUNIMATSU Maki
    Abstract: Because of emerging China UnionPay (CUP) in the global credit card market and its competition with the Visa card, the first World Trade Organization (WTO) case in the financial services sector received attention from the media and commentators. The United States argued that measures by China to establish CUP as the sole supplier of electronic payment services for all domestic transactions in domestic currency, and broad prohibitions on the use of non CUP cards for cross-region or inter-bank transactions are inconsistent with the WTO agreement. However, the Panel did not conclude that the evidence submitted by the United States failed to establish inconsistency. Only marginal measures, such as requirements of a CUP logo and automated teller machine/point-of-sale (ATM/POS) acceptability of CUP cards were found to be WTO inconsistent.Discussion by the Panel revealed vulnerability in the normative structure of the General Agreement on Trade in Services (GATS), including duplication and intransparency of Articles 16 and 17, difficulty in translating "likeness," and uncertainness of scope of specific commitments.
    Date: 2015–06
  14. By: Ron Alquist (Kings Peak Asset Management); Rahul Mukherjee (Graduate Institute of International and Development Studies); Linda L. Tesar (University of Michigan and NBER)
    Abstract: Motivated by a set of stylized facts, we develop a model of cross-border mergers and acquisitions (M&As) to study foreign direct investment (FDI) in emerging markets. We compare acquisitions undertaken during financial crises Ð so called fire-sale FDI Ð with acquisitions made during non-crisis periods to examine whether the outcomes differ in the ways predicted by the model. Foreign acquisitions are driven by two sources of value creation. First, acquisitions by a foreign firm relax the target's credit constraint (i.e., a liquidity motive). Second, acquisitions exploit operational synergies between the target and the acquirer (i.e., a synergistic motive). During crises credit conditions tighten in the target economy and the liquidity motive dominates. The model predicts that during crisis relative to non-crisis periods, (1) the likelihood of foreign acquisitions is higher; (2) the proportion of foreign acquisitions in the same industry is lower; (3) the average size of ownership stakes is lower; and (4) the duration of acquisitions is lower (i.e., acquisition stakes are more likely to be flipped). We find support for (1) but not for the other three predictions. The results thus suggest that foreign acquisitions in emerging markets do not differ in these important ways between crisis and normal periods.
    Keywords: Fire sales; foreign direct investment; cross-border mergers and acquisitions; nancial crises; flipping
    JEL: F21 G01 G34
  15. By: Gissler, Stefan (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: A V-shaped price pattern is often observed in financial markets - in response to a negative shock, prices fall "too far" before reversing course. This paper looks at one particular channel of such patterns: the link between a liquidity provider's balance sheet and asset prices. I examine a well-identified historical case study where a large exogenous shock to a liquidity provider's balance sheet resulted in severe capital constraints. Using evidence from German universal banks, who acted as market makers for selected stocks in the interwar period, I show in a difference-in-differences framework that binding capital constraints made stocks 15-20 percent more likely to be illiquid if they were connected to the distressed liquidity provider. This resulted in V-shaped price patterns during times of illiquidity, where prices declined on average 2.5 percent and reversed over the next one to three days. Investing in these particular stocks would have yielded substantial gains. These findings can be rationalized by a model that incorporates imperfect competition and asymmetric information. Under this model, banks' market-making reduces price volatility (and uninformed traders' reactions to price movements) in normal times whereas in distressed times, the price impact of noise trading is high and leads to sharp price declines that are unrelated to fundamentals.
    Keywords: Asset pricing and bonds; banks; credit unions; other financial institutions; economic history; equity; liquidity
    Date: 2015–02–27
  16. By: Peter Martey Addo (Centre d'Economie de la Sorbonne)
    Abstract: Modern financial systems exhibit a high degree of interdependence making it difficult in predicting. This has raise concerns on the correct identification of coupling direction in financial sectors of the economy. This study explores a “two-way” risk connection between the European banking and insurance sector based on geometrical closeness of observations. Specifically, the study looks at the inter-system recurrence networks in tracing dynamical transitions and detecting coupling direction between these sectors. The overall results shows that the banking sector is central in risk transmission compared to the insurance sector. A comprehensive discussion of the feasibility and relevance of the approach in studying systemic risk is provided
    Keywords: Financial institutions; Recurrence networks; Systemic risk; Recurrence plots
    JEL: C40 E50 G01 G20
    Date: 2015–06
  17. By: Hamidi Sahneh, Mehdi
    Abstract: This paper provides new conditions under which the shocks recovered from the estimates of structural vector autoregressions are fundamental. I prove that the Wold innovations are unpredictable if and only if the model is fundamental. I propose a test based on a generalized spectral density to check the unpredictability of the Wold innovations. The test is applied to study the dynamic effects of government spending on economic activity. I find that standard SVAR models commonly employed in the literature are non-fundamental. Moreover, I formally show that introduction of a narrative variable that measures anticipation restores fundamentalness.
    Keywords: Fundamentalness; Identification; Invertible Moving Average; Vector Autoregressive
    JEL: C32 C5 E62
    Date: 2015–06–15
  18. By: Bertay, Ata Can; Gong, Di; Wagner, Wolf
    Abstract: Using an international panel, we analyze the relationship between country-level securitization and economic activity. Our findings suggest that securitization is negatively related to various proxies of economic activity – even prior to the crisis of 2007-2009. We explain this finding by securitization spurring consumption at the expense of investment and capital formation. Consistent with this, we find that securitization of household loans is negatively associated with economic activity, whereas business securitization displays a weak positive association with it, and that household securitization increases an economy’s consumption-investment ratio. Our results inform recent initiatives aiming at reviving securitization markets, as they indicate that the impact of securitization crucially depends on the underlying collateral.
    Keywords: business securitization; economic growth; household securitization; securitization
    JEL: G01 G21 O16 O40
    Date: 2015–06
  19. By: Alexis Stenfors (University of Leeds)
    Abstract: This study investigates the evolution of the Swedish financial system since the 1980s. The concept of financialisation, with its different elements and perspectives, is used as a lens through which the key historical developments are analysed. The aim of the study is two-fold. First, by highlighting some unique country-specific features, it addresses the profound changes that have taken place in the Swedish financial system during the last decades in relation to the ‘rise and fall’ of the so-called ‘Swedish model’. Second, in doing so, the study considers the appropriateness and applicability of standard attempts to categorise financial systems according to the weight of banks versus markets, states versus markets and so forth. The picture that emerges from the Swedish example in particular shows the need to go deeper and beyond these classifications in order to obtain or more nuanced understanding of the increasing role of financial markets in developed countries.
    Keywords: Sweden, Swedish model, welfare state, financialisation, financial system, financial crisis, banking crisis
    JEL: E44 F3 G2 N14 N24 O52 P16
    Date: 2014–10–28
  20. By: Miho Sunaga (Graduate School of Economics, Osaka University)
    Abstract: This study introduces financial intermediaries into the Schumpeterian growth model developed by Aghion, Howitt, and Mayer-Foulkes (2005). They collect deposits from households, provide funds for entrepreneurial projects, and monitor the entrepreneurs. I consider an economy with moral hazard problems: entrepreneurs can hide the result of a successful innovation and thereby avoid repaying financial intermediaries if the latter do not monitor entrepreneurial performance. I analyze the effects of financial interme- diariesf activities on technological progress and economic growth in such an economy. I show that financial intermediaries need to monitor entrepreneurs in an economy where the legal protection of creditors is not strong enough. Such monitoring can resolve the moral hazard problem; however, it does not always promote technological innovation, because it could increase the cost of entrepreneurial innovation and thus reduce the amount invested for innovation. I also examine how monitoring by financial intermedi- aries affects the welfare of individuals through the stringency of financial markets.
    Keywords: conomic growth, Innovation, Financial intermediaries, Monitoring
    JEL: G21 O16 O41
    Date: 2015–06
  21. By: Nellie Zhang
    Abstract: This paper uncovers trends in payment timing in Canada’s Large Value Transfer System (LVTS) from 2003 to 2011. Descriptive analysis shows that LVTS payment activity has not been peaking in the late afternoon since 2008, and the improvement was most significant in 2009. Ordinary least squares regressions are conducted to identify various factors that might have contributed to the changes in the payment value time distribution. The main findings include that a larger proportion of high-value payments results in later payment submission and hence settlement; as an important source of intraday liquidity, a higher CDSX payout value tends to speed up LVTS transactions. Several changes in the system parameters—such as increases in the frequencies of the Jumbo algorithm and Jumbo queue expiry—also quickened the settlement. In addition, the results suggest that the temporary exceptional liquidity initiatives introduced in late 2008 and a large increase in settlement balances were major contributors to the earlier settlement of LVTS payments.
    Keywords: Payment clearing and settlement systems
    JEL: E E5 E50 G G2 G20
    Date: 2015

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