We study two designs for a liquidity-saving mechanism (LSM), a queuing arrangement used with an interbank settlement system. With a balance-reactive LSM, banks can set a balance threshold below which payments are not released from the queue, an action not possible with a receipt-reactive LSM....

This paper studies the incentives of participants in a real-time gross settlement system with and without the addition of a liquidity-saving mechanism (LSM). Participants in the model face a liquidity shock and different costs for delaying payments. They trade off the cost of delaying a payment...

Before the formation of the Federal Reserve, banking panics were routine events in the United States. During the most severe episodes, banks in cities across the country would often suspend or restrict the par convertibility of their demand deposit liabilities. In diagnosing the causes of the...