The amount of reserves held by the U.S. banking system reached $1.5 trillion in April 2011. Some economists argue that such a large quantity of bank reserves could lead to overly expansive bank lending as the economy recovers, regardless of the Federal Reserve's interest rate policy. In...

We study two designs for a liquidity-saving mechanism (LSM), a queuing arrangement used with an interbank settlement system. We consider an environment where banks are subjected to liquidity shocks. Banks must make the decision to send, queue, or delay their payments after observing a noisy...

Deposit insurance has been adopted at an accelerating rate by countries around the world, but evidence indicates that it causes increased risk from moral hazard and may be adopted for rent-seeking reasons. A primary justification for deposit insurance is the theoretical literature on bank runs....

This paper studies banks' incentives for choosing the timing of their payment submissions in a collateral-based real-time gross settlement payment system and the way in which these incentives change with the introduction of a liquidity-saving mechanism (LSM). We show that an LSM allows banks to...

This paper considers the welfare effects of introducing a liquidity-saving mechanism (LSM) in a real-time gross settlement (RTGS) payment system. We study the planner's problem to get a better understanding of the economic role of an LSM and find that an LSM can achieve the planner's allocation...

Before the era of large central bank balance sheets, banks relied on incoming payments to fund outgoing payments in order to conserve scarce liquidity. Even in the era of large central bank balance sheets, rather than funding payments with abundant reserve balances, we show that outgoing...

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

We use minute-by-minute daily transaction-level payments data to document the cross-sectional and time-series behavior of the estimated prices and quantities negotiated by commercial banks in the fed funds market. We study the frequency and volume of trade, the size distribution of loans, the...

This paper attempts to quantify the benefits associated with operating a liquidity-saving mechanism (LSM) in Fedwire, the large-value payment system of the Federal Reserve. Calibrating the model of Martin and McAndrews (2008), we find that potential gains are large compared to the likely cost of...

We use an information-theoretic approach to describe changes in lending relationships between federal funds market participants around the time of the Lehman Brothers failure. Unlike previous work that conducts maximum-likelihood estimation on undirected networks, our analysis distinguishes...