Journal Article
Economizing on liquidity with deferred settlement mechanisms
Johnson, Kurt; Soramaki, Kimmo; McAndrews, James J. (2004-12)
Credit extensions to banks using the Fedwire Funds Service-the Federal Reserve's real-time gross settlement (RTGS) payments system-can reach intraday peaks as high as $86 billion. This article evaluates the effectiveness of alternative methods of settling Fedwire payments in reducing intraday credit extensions. The authors simulate three deferred settlement mechanisms that complement RTGS systems: one-hour netting, six-hour netting, and a mechanism called a receipt-reactive gross settlement (RRGS) system. Their results suggest that in conjunction with RTGS systems, the RRGS mechanism could ...
Economic Policy Review , Issue Dec , Pages 51-72

Journal Article
Global trends in large-value payments
Preisig, Christine; Bech, Morten L.; Soramaki, Kimmo (2008-09)
Globalization and technological innovation are two major forces affecting the financial system and its infrastructure. Perhaps nowhere are these trends more apparent than in the internationalization and automation of payments. While the effects of globalization and technological innovation are most obvious on retail payments, the influence is equally impressive on wholesale, or interbank, payments. Given the importance of payments and settlement systems to the smooth operation and resiliency of the financial system, it is important to understand the potential consequences of these ...
Economic Policy Review , Volume 14 , Issue Sep , Pages 59-81

Report
Congestion and cascades in payment systems
Beyeler, Walter E.; Glass, Robert J.; Bech, Morten L.; Soramaki, Kimmo (2006)
We develop a parsimonious model of the interbank payment system to study congestion and the role of liquidity markets in alleviating congestion. The model incorporates an endogenous instruction arrival process, scale-free topology of payments between banks, fixed total liquidity that limits banks' capacity to process arriving instructions, and a global market that distributes liquidity. We find that at low liquidity, the system becomes congested and payment settlement loses correlation with payment instruction arrival, becoming coupled across the network. The onset of congestion is evidently ...
Staff Reports , Paper 259

Report
The topology of interbank payment flows
Arnold, Jeffrey; Bech, Morten L.; Glass, Robert J.; Beyeler, Walter E.; Soramaki, Kimmo (2006)
We explore the network topology of the interbank payments transferred between commercial banks over the Fedwire Funds Service. We find that the network is compact despite low connectivity. The network includes a tightly connected core of money-center banks to which all other banks connect. The degree distribution is scale-free over a substantial range. We find that the properties of the network changed considerably in the immediate aftermath of the attacks of September 11, 2001.
Staff Reports , Paper 243