. Freeman's conclusion that the central bank should absorb losses related to default to provide risk-sharing goes against the … concern that central banks should limit their exposure to credit risk. We extend Freeman's model by introducing moral hazard …. With moral hazard, the central bank should avoid absorbing losses, contrary to Freeman's argument. However, we show that …

Over the last few decades, most central banks, concerned about settlement risks inherent in payment netting systems …, they require greater liquidity to smooth nonsynchronized payment flows. Thus, central banks typically provide intraday … intraday liquidity is managed has become a competitive parameter in commercial banking and a policy concern of central banks …