Intraday Liquidity and Central Bank Credit in Gross Payment Systems

The aim of this paper is to compare modern gross payment systems and emphasize their implications on the availability of intraday liquidity and credit from the central bank. We introduce the risk of default involved in extending intraday credit to determine the implications on consumer and bank behaviour. The results show that the non-marketable collateral assets model, which provides greater flexibility to banks but does not completely eliminate credit risk, is superior to other models. To minimize the remaining credit risk, financial authorities should analyse the financial condition of banks, establish higher credit standards for collateral and specify particular criteria to accept non-marketable assets. These actions will improve the performance of this model and reinforce the role of the financial authorities in providing intraday liquidity.