Working Paper
Sharing the risk of settlement failure
Abstract: Two policies toward payments-system risk are common, but superficially appear to be contradictory. One policy is to restrict the exposure to risk generated by one participant to other participants who are, by one measure or another, directly concerned with the risky participant. The other policy is to provide a ?safety net,? typically provided by government and funded by taxes collected from all participants and even from non-participants, to share losses due to ?systemic risk.? In this paper, we provide a model in which both of these policies can be constituents of an economically efficient regime of payments-risk management.
Keywords: Payment systems; Risk management;
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Bibliographic Information
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Working Papers
Publication Date: 1999
Number: 594