Content area
Full Text
Summary of Working Paper no. 370
We investigate how banks that are direct members of the United Kingdom's large-value payment system, CHAPS, react to operational problems that prevent their counterparties from making payments in CHAPS. It handles nearly all large-value same-day sterling payments between banks, other than those relating specifically to the settlement of securities transactions. Every day, about £270 billion worth of payments are settled using the system. In such real-time gross settlement systems, these direct members - also referred to as settlement banks - rely to some extent on incoming payments to fund their own payments: in 2006, five settlement banks settled £5-£10 worth of payments for each pound of liquidity they had available at the start of the day, and five other banks settled even more than £10. (There were fifteen direct members at that time: the Bank of England and CLS were excluded in these calculations, and the Royal Bank of Scotland and NatWest treated as one entity.)
Occasionally, a settlement bank experiences operational problems which prevent it from sending payment instructions to CHAPS (an 'outage'). Frequently, such a bank - we referto it...