Tag Archives: Liquidity supply

Who supplies liquidity in CHAPS?

Evangelos Benos and Christina Fritz

Every day UK banks and corporates (“participants”) make sizeable payments to each other through CHAPS, the country’s high-value payment system. However, these payments are liquidity-intensive: every payment must be pre-funded, i.e. the payer must have in place the full amount to be paid. This can be costly, so each participant would prefer to first receive some money from another one and then make its own payments by recycling the received amount. However, this still requires that some participants supply intra-day liquidity to the system by making the first payments. But who are these participants? This post shows that it is typically the smaller ones and also those perceived by markets to be riskier that get the ball rolling…

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Filed under Financial Stability, Market Infrastructure