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| Author: | Munoz, F.J.C. |
| Title: | The use of collateral in gross and net payment systems |
| Journal: | European Journal of Finance
2007 : JUL/SEP, VOL. 13:5-6, p. 459-481 |
| Index terms: | financial markets payment systems liquidity risk banking electronic funds transfer systems European Union |
| Language: | eng |
| Abstract: | This paper aims to make a comparative analysis of modern gross and net payment systems, with the emphasis on the implications of the availability of intraday liquidity in the former, and of collateral (here as: coll.) requirements in the latter. A 2-asset economy is described: eligible as coll. and not eligible, aiming at determining the implications of the requirement of these guarantees on banks' portfolio decisions. It is shown in a calibration exercise, how it would be legitimate for a benevolent authority to have a preference for a gross system, like TARGET, over a net system, like EURO1, for relatively high values, although plausible, of risk aversion. |
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