Congestion and Cascades in Payment Systems

@inproceedings{Beyeler2006CongestionAC,
  title={Congestion and Cascades in Payment Systems},
  author={Walt E. Beyeler and Kimmo Soram{\"a}ki and Morten L. Bech and Robert J. Glass},
  year={2006}
}
We develop a parsimonious model of the interbank payment system. The model incorporates an endogenous instruction arrival process, a scale-free topology of payments between banks, a fixed total liquidity which limits banks’ capacity to process arriving instructions, and a global market that distributes liquidity. We find that at low liquidity the system becomes congested and payment settlement loses correlation with payment instruction arrival, becoming coupled across the network. The onset of… CONTINUE READING