Analyzing Alternative Intraday Credit Policies in Real-Time Gross Settlement Systems

This paper examines a central bank's choice of intraday credit policy for real-time gross settlement (RTGS) systems. Formal analysis of central bank objectives and commercial bank payment activity provides insight into both the choice and effects of several possible intraday credit policies. Observed intraday credit policies are interpreted within the context of the model. Among G-10 central banks, different combinations of prices, collateral, and quantity limits have been chosen to manage the supply of intraday credit. Conditions that rationalize these choices are shown to rely on (a) central bank preferences regarding credit risk and systemic risk, (b) liquidity management technologies, and (c) the cost of collateral.