Measuring the Impact of a Failing Participant in Payment Systems

Author/Editor:

Fernanda Brollo ; Froukelien Wendt

Publication Date:

June 5, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

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.

Series:

Working Paper No. 20/81

Subject:

English

Publication Date:

June 5, 2020

ISBN/ISSN:

9781513545080/1018-5941

Stock No:

WPIEA2020081

Format:

Paper

Pages:

29

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