Interlinkages between Payment and Securities Settlement Systems

Payments systems typically involve a number of interconnected systems. These typically have at the center a large-value payment system (in many cases operated by a central bank) through which banks send funds to each other for various purposes. Some of these purposes include providing liquidity to complete transactions in any number of ancillary systems, such as other large value funds transfer systems, retail payment networks, securities settlement systems, and foreign exchange settlement systems. Of fundamental interest to central banks are the interlinkages among these types of systems. In particular, it is important to understand how disruptions in one system may a ect the functioning of other systems. This paper provides a relatively simple economic framework to begin to understand some of the di erent linkages of such systems The views in this paper are solely the responsibiity of the authors and do not necessarily re ect the views of the Board of Governors of the Federal Reserve System or the Federal Reserve System. All errors are those of the authors. yCooresponding author. Telephone: 202-530-6265. Email: [email protected]