The fountainhead: analyzing the impact of intraday liquidity on payment behavior

Abstract

This paper explores the effect of central banks' intraday liquidity provisions on the timing of payments in a real-time gross settlement (RTGS) system and how dependent they are on incoming payments. This is especially important in cases such as Mexico, where only a subset of participants has direct access to the central bank's intraday liquidity facilities. Using unique microdata from the Interbank Electronic Payment System (Mexico's RTGS system) transaction log, we estimate how the responsiveness of outgoing payments to incoming payments and account balances changes with access to central bank liquidity. Then we estimate a model in which the intraday distribution of payments depends on their access to the central bank's liquidity, their importance as a funding source and payment recipients of other participants on the RTGS network (visibility) and the shape of the distribution of incoming payments. The main finding of this paper is that access to the Bank of Mexico's intraday liquidity translates into prompter payments and a lower dependency on incoming payments and account balances.