-saving mechanism (LSM). We show that an LSM allows banks to economize on collateral while also providing incentives to submit payments … earlier. The reason is that, in our model, an LSM allows payments to be matched and offset, helping to settle payment cycles …

achieved without an LSM, as long as some payments can be delayed without cost. In equilibrium with an LSM, we show that there … can be either too few or too many payments settled early compared with the planner’s allocation, depending on the …

, or delay their payments after observing a noisy signal of the shock. With a balance-reactive LSM, banks can set a balance … threshold below which payments are not released from the queue. Banks can choose their threshold such that the release of a … effects on different types of payments. Payments that are costly to delay will be settled at least as early, or earlier, with …