Interbank Payment Research Articles

Price-mediated contagion with endogenous market liquidity

AbstractPrice-mediated contagion occurs when a positive feedback loop develops following a drop in asset prices which forces banks and other financial institutions to sell their holdings. Prior studies of such events fix the level of market liquidity without regards to the level of stress applied to the system. This paper introduces a framework to understand price-mediated contagion in a system where the capacity of the market to absorb liquidated assets is determined endogenously. In doing so, we construct a joint clearing system in interbank payments, asset prices, and market liquidity. We establish mild assumptions which guarantee the existence of greatest and least clearing solutions. We conclude with detailed numerical case studies which demonstrate the, potentially severe, repercussions of endogenizing the market liquidity on system risk.

New Sustainable Fintech Business Models Created by Open Application Programming Interface Technology: A Case Study of Korea’s Open Banking Application Programming Interface Platform

Fintech facilitates financial inclusion by introducing new sustainable and accessible business models in developing countries. Open banking API technology is used by various fintech businesses in both developing and developed countries, with varying effects on financial markets. It changes the financial market distribution structure by separating financial product manufacturing and distribution and intensifying competition between traditional financial institutions and fintech companies. Fintech companies innovate by using this tool to create new business models. In December 2019, Korea established a standardized “open banking API platform”, sharing an interbank payment network with fintech companies. It has since shown explosive growth, surpassing the trading volume of the UK, the country that introduced open banking APIs for the first time. This study analyzes new business models fintech companies created using this API technology. Based on existing literature, statistics from the platform operator (the Korea Financial Telecommunications and Clearings Institute), and investigations of 30 Korean fintech mobile applications, this study analyzes new fintech business models that provide financial services using this platform. These companies create sustainable business models by combining multiple APIs. Four representative business models (simple funds transfer, simple payment, cross-border remittance, and asset management) are analyzed to reveal how fintech companies create business models with open APIs.

ВЛИЯНИЕ ФИНАНСОВЫХ САНКЦИЙ США НА ТРАНСГРАНИЧНУЮ ЭЛЕКТРОННУЮ ТОРГОВЛЮ МЕЖДУ КИТАЕМ И РОССИЕЙ

This article analyzes the impact of financial sanctions on cross-border electronic commerce using Russia and China as examples. The authors examine both primary and secondary financial sanctions, as well as the problems arising in cross-border electronic commerce due to the exclusion of Russian banks from the SWIFT system. They also discuss alternative payment systems such as SPFS (Bank of Russia's Financial Messaging System) and CIPS (Cross-Border Interbank Payment System), which aim to replace SWIFT. Additionally, the article notes a decrease in the activity of major trading platforms in the Russian market in the context of sanctions against Russia, indicating serious challenges for cross-border electronic commerce that may lead to reduced trade volumes between the countries and complicate business processes.

Determinants of Net Transactions in TARGET2 of European Banks Based on Micro-data

AbstractThis paper examines German and foreign bank factors that can explain net flows of cross-border central bank liquidity between Germany and the rest of the euro area. Using data from the German component of Eurosystem’s real-time gross settlement system TARGET2 and BankFocus for the period between 2009 and 2021, we provide empirical evidence that only few balance sheet items and profit and loss accounts affect net flows with Germany. We control for bilateral bank-specific relationships and time-varying macroeconomic country effects in our regressions. In general, German bank factors seem to be more important than characteristics of foreign banks. A German bank that exhibits relatively high claims against central banks seems to attract less additional central bank liquidity from abroad than a German bank with fewer existing central bank claims. Net claims against central banks, which also control for liabilities, have no effect on net transactions in TARGET2. However, higher overall liquidity of a German credit institution corresponds to additional net inflows. Foreign bank factors only matter for central bank payments and intragroup payments. We also document heterogeneities across different types of transactions which influence the German TARGET2 balance. While customer payments, interbank payments and central bank payments have increased net flows to Germany in sum, intragroup payments and ancillary systems’ transactions have led to net outflows.

Innovation in retail payments and its impact on central banks’ oversight function

Technological advances are having a significant impact on countless aspects of our lives and, in particular, on how we pay for the goods and services we consume. These changes in the payment value chain are affecting the oversight functions of central banks and other authorities entrusted with making certain that new risks that appear are managed appropriately, to ensure that innovation translates into secure efficiency gains. This article focuses on the impact of these innovations on central banks’functions. It first examines recent developments in payment habits in Spain as a consequence of technological innovation and other key factors such as those related to the COVID-19 pandemic. It then describes the impact of innovation on interbank payment processes. Lastly, it analyses the response of the Eurosystem –from an oversight standpoint –and of other authorities to the changes in the payment ecosystem.

Monetary Policy Transmission Channels on the Performance of Nigerian Stock Market

This study examined the effect of electronic payment instruments and inflation rate in Nigeria. The objective was to study the effect of different electronic payment instruments on Nigeria inflation rate. Time series data were sourced from Central Bank of Nigeria Statistical Bulletin from 2012 to 2021. Nigeria inflation rate was model as the function of automated teller machine, point of sales, web payment, mobile payment, Nigeria interbank payment and cheque payment. Ordinary least square was used as data analysis methods. The study found that 77.4 and 62 percent variation in inflation rate in Nigeria was explained by variation in electronic payment instruments. From the findings, the study concludes that automated teller machine has positive and significant effect on inflation rate in Nigeria, point of sales has positive and significant effect on inflation rate in Nigeria, web payment has positive but no significant effect on inflation rate in Nigeria, mobile payment has positive but no significant effect on inflation rate in Nigeria, Nigeria inter-bank payment has positive and significant effect on inflation rate in Nigeria while cheque payment has positive but no significant effect on Nigeria inflation rate. the study therefore recommend that, the regulatory authorities should ensure that the application of electronic payment instruments such as Automated Teller machine and point of sales regulated to achieve price stability and low inflation and that the application of electronic payment statistics should be harmonized with the monetary policy objectives of achieving low inflation and policies should be guided to reduce the amount of electronic payment transactions.

Decentralized Payment System by using Blockchain

Existing interbank payment systems are unable to offer cost-effective cross-border transactions because the correspondent banking process involves a large number of intermediaries operating in various time zones. They also experience lengthy transaction delays and a lack of transparency. These problems can be resolved by creating an auditable coin on a permissioned blockchain, which allows a set of administrators to control the network. Using an auditable cryptocurrency that supports unspent transaction output-based transactions in a consortium blockchain network, we suggest a low-cost, seamless cross-border payment system in this research. Participating nations perform the power-efficient proof of authority consensus method on the blockchain with equal privileges. Dynamic decentralized identifiers (DIDs), as opposed to traditional cryptocurrencies, are utilized as transacting addresses to enable self-manageable authentication.

A Low-Cost Cross-Border Payment System Based on Auditable Cryptocurrency With Consortium Blockchain: Joint Digital Currency

Due to the involvement of a large number of intermediaries across different time zones in the correspondent banking process, existing interbank payment systems cannot provide cost-effective cross-border transactions. They also suffer from lack of transparency and long transaction delays. These issues can be solved by designing a cryptocurrency in an auditable manner using a permissioned blockchain where a group of authorities can govern the network. In this paper, we propose a low-cost, seamless cross-border payment system based on an auditable cryptocurrency that enables unspent transaction output-based transactions in a consortium blockchain network. To manage the blockchain, participating countries execute the energy-efficient proof of authority consensus algorithm with equal rights. Unlike conventional cryptocurrencies, dynamic decentralized identifiers (DIDs) are used as transacting addresses so that self-manageable authentication can be performed on-chain without any interaction with a trusted third party. The identity of transacting parties is known to respective DID issuers only. This approach enables peer-to-peer transactions while protecting user privacy and ensuring transparency without jeopardizing auditability. For user convenience, multi-party computation and multi-signature protocols are also provided. The system was implemented in Python, and the transaction mechanism was tested. This paper can help with ongoing research on blockchain-based cross-border payment solutions worldwide.

The Impact of Fintech Application on the profitability of the banking sector in Algeria: An analytical and Statistical Econometric Study for Period (2010-2022) [In Arabic

This study aims to detect the impact of the application of financial technology services, represented by the number of automated teller machines (ATMs) per 100,000 adults and the number of interbank payment cards (CIB) issued in Algeria, on the profitability of the Algerian banking sector as measured by the rate of return on equity (ROE) for annual data during the period (2010-2019), using a multiple linear regression model. This was preceded by a statistical study of the reality of the application of financial technology services in Algeria during the period (2016-May 2022). The study found a positive significant effect of the two indicators of financial technology on the rate of return on equity (ROE). In order to benefit the banking sector in Algeria from the advantages of financial technology the concerned authorities should pay attention to the need to develop the banking sector and provide technical infrastructure and appropriate financial technology services.

Cross border Interbank Payment System (CIPS) Security Supplements; Tangible Radio Safety Box, Software as non-textual Password and Revolving Executable Code Modules

Our research started a long ago as additional security for the asset owner to facilitate CIPS ( Cross-border Interbank Payment System) holistic security. Minor corrections were proposed, like an e-mail with a new domain for every transaction, Ping services in a VPN environment, and mirroring avoidance. Our primary approach was to fight internal fraud and hacking threats. Apart from these known vulnerabilities indemnification, we propose three specific security supplements. A shortwave activated latch inside a local safe box and Thales interconnector for a tangible bank security system. The asset owner unlocks his funds as digital money or tangible items like gold through radio communications SDR (Software Defined Radio). Second is the cornerstone of our civilization, the computer-executable avoiding all methods for non-textual passwords. Our last development is a GitHub antipode Software authoring anonymous system. According to our plan, the Internet-based banking system software has separated intercommunicating subroutines. All subroutines are assigned to various programmers for independent implementation, avoiding the internal hacker without the need to find him. For example, a system software written by splitting it into 12 subroutines assigned to 12 programmers working on subroutines has a probability of the thirteenth order of magnitude.

The Role of International Settlement Interbank System In the Modern World

The article discusses the modern interbank settlement system, including SWIFT, its impact on the global financial system, and SWIFT's role in relation to financial sanctions. The aim of the paper is to present, based on the current economic processes in the world, how SWIFT operates in Georgia, to set priority ways for the development of interbank payment systems. The introduction of modern forms and methods of payment ensures the effective operation of the banking and financial system in Georgia. Development of international standards and technologies globally. Real-time transfers contribute to the development of international trade and services. In order to improve the payment system in Georgia, it is important to develop high-tech banks so that they can meet the needs of customers. It is necessary to promote increased competition between banks. International sanctions may not be tolerated, as it is on it that the development of the country's economy is underway. Keywords: Interbank system of international payments; SWIFT; Financial sanctions; Financial message transfer system - SPFS; Russian Internal Transfer System MIR.

Tindak Pidana di Bidang Perbankan dalam Transaksi Perdagangan Luar Negeri dengan Menggunakan Letter Of Credit

Letter of Credit/LC is an interbank payment transaction instrument whose legal arrangements have been established both nationally and internationally. In this study, the writer wants to know how the regulation of criminal acts in the banking sector against foreign transactions through letters of credit, and the criminal sanctions that make the issuing bank a victim in foreign trade transactions using the letter of credit , uses this type of normative research. sources of primary, secondary, and tertiary rules. This thesis uses the type of search, recording and documentation Analysis of legal sources is carried out systematically using legal arguments and the results are presented descriptively. The conclusion is that the regulation of foreign trade crimes through Letter of Credit is regulated in UPC-DC600 and PP No. 1/1982 as well as Law No. 10/1998 on banking. Sanctions for violating foreign transactions through a Letter of Credit can be subject to criminal sanctions and fines in accordance with the provisions of Article 49 (1) of Law No. 10/1998.

Are the Russian Banks Threatened with Removal from SWIFT? A Multiple Case Study on Interbank Financial Messaging Systems

When Russia invaded Ukraine in February 2022, the United States, European Union, and their allies removed the Russian banks from the main interbank payment system worldwide, SWIFT (Society for Worldwide Interbank Financial Telecommunication), which is a secure messaging system that makes cross-border payments possible, vital for the international trade. However, it is not the first time that Russian banks are threatened with disconnection from Swift by the US government. In response, the Central Bank of Russia developed in 2014 the SPFS (System for Transfer of Financial Messages, our translation). In addition, the Chinese government created in 2015 an equivalent system named Cross-Border Interbank Payment System (CIPS). In this article, we examined SWIFT and alternatives, such as the Russian SPFS, the Chinese CIPS, and the Indian SFMS. Key findings pointed out crucial differences between the financial messaging systems, their objectives, and the expansion of operations overseas. Finally, discussion and implications to the global economy compile this work.

ЭКОНОМИЧЕСКИЕ САНКЦИИ И ПРОБЛЕМА ИМПОРТОЗАМЕЩЕНИЯ

The article is devoted to the analysis of the sanctions imposed against Russia over the past decade and the problem of import substitution as a tool to increase the economic security of the state. After the announcement of the RF recognition of the independence of the Donetsk and Lugansk People's Republics (DPR and LPR) on February 22, 2022, and the subsequent special military operation of Russia to denazify and demilitarize Ukraine, a new stage of international relations began, associated with the introduction of an unprecedented scale (and constantly replenishing) sanctions on Russia by the United States, the European Union and some other states. The largest trade sanctions in history were imposed - a ban on the export of high-tech components and parts to the Russian Federation, as well as services and support related to this activity. Many trade agreements were annulled, and Russian banks were disconnected from the SWIFT interbank payment system. The foreign property and assets of many Russians have been seized. Flights are prohibited in the airspace of the European Union, Great Britain, Canada and other countries. The supply of Russian oil to America and Great Britain is limited, all foreign investments in the Russian economy under their jurisdiction are blocked. Foreign assets of the Central Bank of the Russian Federation are frozen. There are bans and restrictions in the field of broadcasting Russian media, social networks in the country. There is a break in diplomatic ties with a number of states. Many foreign companies have suspended their activities in the Russian market. Analysts predict the following main risks for Russian business: logistics crisis; restructuring trade routes; difficulties in meeting financial obligations and using financial instruments (leasing, factoring, etc.); limitation of the supply area; reduction in investment; reduced availability of loans; restriction of currency settlements; reputational costs, etc. In this regard, import substitution is one of the main directions of the strategy for developing the Russian economy and ensuring its security.

CROSS-BORDER INTERBANK PAYMENT SYSTEM (CIPS) И ЕЕ РОЛЬ В ПРОЦЕССЕ ИНТЕРНАЦИОНАЛИЗАЦИИ НАЦИОНАЛЬНОЙ ВАЛЮТНОЙ СИСТЕМЫ ЮАНЯ

Since the beginning of the global financial crisis of 2008-2009, which highlighted the weakness of the international monetary system due to its complete dependence on the US dollar as the main world currency, the leadership of the People’s Republic of China, like many other states, felt its dependence and, taking advantage of the situation, used the full potential of opportunities and efforts to raise the status of the yuan to the level of the international reserve currency currencies and put an end to the dominance of the dollar. The PRC’s efforts were aimed at promoting the yuan in international payments, creating its own global financial infrastructure and networks in yuan and reforming the international monetary system. The creation of China’s own cross-border interbank payment system (CIPS) has become an integral part of building a global financial infrastructure in yuan. Combined with other anti-crisis measures to internationalize the yuan, CIPS helped achieve a sharp increase in the use of the yuan as an international payment currency in less than two years after the system was fully launched in 2018. CIPS is designed in the likeness of the existing market-leading payment systems CHIPS and SWIFT, uses their operational functions that are deeply embedded in the global financial system. Based on key literature in English and Chinese, assessing historical precedents and economic data, the authors try to assess the role of the CIPS system and the yuan in international foreign exchange reserves and payments, the problems of finding global recognition and prospects for improving the supranational use of the Chinese currency

Risk monitoring in Ecuador's payment system: Implementation of a network topology study

Payment systems are fundamental pillars of countries’ economic stability and financial systems. Central banks use them to promote safe and efficient electronic payments. As such, central banks have developed various tools to control and monitor inherent risks such as systemic risk, liquidity risks or operational risks that could affect one or more members of the system, and thus affect the payment chain of a given country. Our objective is to present a network topology methodology as a tool to study the characteristics and properties of the Interbank Payment System (SPI) in Ecuador. We establish systemically important players to determine whether their absence in simulated scenarios would cause financial contagion to the rest of the participants in the SPI. We have applied our network topology tool to detect systemic risk in the SPI during the period of the SARS-COV-2 pandemic in 2020. We found that the SPI payment network is sensitive to the absence of its systemically important participants, as well as to exogenous events such as the pandemic, due to which a loss of network stability (payment execution delinquency) arises. This paper constitutes a first application of the network topology for the Ecuadorian case, and at the same time a tool for preventive or corrective policymaking on disruptions in the SPI payment system.

An Application of Shapley Value Cost Allocation to Liquidity Savings Mechanisms

This paper describes a proposal for operating a centralized netting queue for nonurgent interbank payments that involves take-it-or-leave-it offers and allocates liquidity costs using the Shapley value. This method achieves fairness and ensures welfare-maximizing netting proposals are agreeable to all providers of liquidity.

المقاصة الإلکترونیة بالتصویر الضوئی دراسة فقهیة مقارنة

تعتمد التحويلات الإلکترونية ووسائل الدفع الإلکتروني وغيرها من المعاملات المصرفية المتطورة على المقاصة الإلکترونية بالتصوير الضوئى؛ حيث تتم بها تسوية الحسابات وکافة المدفوعات بين البنوک بإجراء القيود المحاسبية اليومية دون الحاجة إلى انتقال الأموال من بنک لآخر، بالإضافة إلى تفعيل نظام التسويات الإلکترونية الفورية؛ مما أسهم في زيادة سرعة دوران الأموال في الاقتصاد المحلى، فالمقاصة الإلکترونية بالتصوير الضوئى متطلب رئيسي لمواکبة التطورات التکنولوجية الحديثة فى إطار تطوير جودة الخدمات المصرفية. ولقد اتبعت فى هذا البحث عدة مناهج الوصفي والاستقرائي والاستنباطي والمقارن حيث ذکرت المدلولات اللغوية والتعريفات الاصلاحية للمقاصة الإلکترونية بالتصوير الضوئي، وحصرت أشکالها وشروطها، وبينت موقف الفقه الإسلامي من حالات التقاص الإلکتروني بالتصوير الضوئي، والعمولة المأخوذة على إجرائها وعلى إعادة الصکوک. وتوصلت إلى أن أحدث أنظمة المقاصة هي المقاصة الإلکترونية بالتصوير الضوئي، کما أن أشکالها تتنوع بحسب وسائل الدفع التي تعالجها، أيضا يجوز إجراء المقاصة الإلکترونية بالتصوير الضوئي حال الدفع بالعملة المحلية أو الأجنبية، ويجوز إجراء القيود المحاسبية لإتمام إجراء عملية المقاصة بالتصوير الضوئي، ويجوز لغرفة المقاصة الإلکترونية اشتراط أخذ عمولة على عمليات التسوية بالخصم والإضافة وعلى الصکوک المرتجعة. ولقد أوصيت القائمين على القطاع المصرفي باستمرار التطوير والتحديث للبنية التحتية لهذا القطاع لمواکبة التطور المصرفي العالمي، والاهتمام بتدريب الکوادر البشرية فى هذا المجال. Electronic transfers, electronic payment methods and other sophisticated banking transactions depend on the photocopying clearing house; As the accounts and all interbank payments are settled by making daily accounting entries without the need for funds to move from one bank to another, in addition to activating the immediate electronic settlements system which contributed to increasing the speed of money turnover in the local economy. As photocopying the electronic clearing is key requirement to keep pace with modern technological developments in the context of developing the quality of banking services. I've followed several descriptive, inductive, deductive and comparative approaches in this research, where I mentioned the linguistic connotations and idiomatic definitions of photocopying electronic clearing its forms and conditions I showed the position of Islamic jurisprudence on cases of electronic clearing by photocopying and the commission taken for its procedure and for returning the instruments. It concluded that the most recent clearing system is the electronic clearing by photocopy and its forms vary according to the payment methods that deal with it. Also electronic clearing may be carried out by photocopy when paying in local or foreign currency and accounting entries may be made to complete the clearing process by photocopy and the clearing house may stipulate to take a commission on debit and addition settlements and on returned instruments. I have recommended those in charge of the banking sector to continue developing and modernizing the infrastructure of this sector to keep pace with global banking development and to pay attention to training human cadres in this field.

Crisis Management in Canada: Analyzing Default Risk and Liquidity Demand during Financial Stress

Using detailed information from the Canadian interbank payments system and liquidity-providing facilities, we find that despite sustained increases in market-rate spreads, the increase in banks’ willingness to pay for liquidity during the 2008–2009 financial crisis was short-lived. Our study suggests that high-frequency distress indicators based on demand for liquidity offered by central banks can be complementary, and perhaps even superior, to market-based indicators, especially during times and in markets where uncertainty in the economic environment may lead to lack of meaningful information in prices due to absence of trading. (JEL E42, E58, G01, G21, G28, H12)

An online-decision algorithm for the multi-period bank clearing problem

<p style='text-indent:20px;'>The bank clearing problem (BCP) refers to the problem of designing an optimal clearing algorithm for the interbank payment system. Due to the way in which for the payment system has evolved, the classical BCP model is insufficient for addressing this problem accurately. In particular, delayed settlements are allowed in the now popular high-frequency deferred net settlement (DNS) system. In practice, the characteristics of incoming payment instructions are heavily connected to the time of day, and can be predicted with reasonable precision based on historical data. In this paper, we study the multi-period bank clearing problem (MBCP) by introducing the time dimension and considering future instructions in the decision-making process. We design a new clearing algorithm for MBCP using a model predictive control (MPC) policy, which uses historical data to predict payment instructions in the future. We benchmark the designed algorithm's performance with the classical greedy algorithm on the basis of BCP. Given that the liquidity is regular or relatively low, the numerical results indicate that the designed algorithm significantly improves the quality of clearing decision-making and is robust with respect to forecasting errors and fluctuation of future transactions.</p>