Awareness of operational risk has increased greatly in recent years, both at individual financial institutions and for payment, clearing, and settlement systems (PCSS). PCSS consist of networks of interconnected elements (i.e., central operators, participants, and settlement agents); operational...

The authors build a theoretical model that generates demand for collateral by Large Value Transfer System (LVTS) participants under the assumption that they minimize the cost of holding and managing collateral for LVTS purposes. The model predicts that the optimal amount of collateral held by...