Search Results
Showing results 1 to 1 of approximately 1.
(refine search)
Report
Congestion and cascades in payment systems
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 ...