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 cent ral bank objectives and commercial bank payment activity provides insi ght into both the choice and effects of several possible intraday cred it policies. Observed intraday credit policies are interpreted within the context of the model. Among G-10 central banks, different combinat ions of prices, collateral, and quantity limits have been chosen to ma nage the supply of intraday credit. Conditions that rationalize these choices are shown to rely on (a) central bank preferences regarding cr edit risk and systemic risk, (b) liquidity management technologies, an d (c) the cost of collateral.