Data Entry: Please note that the research database will be replaced by UNIverse by the end of October 2023. Please enter your data into the system https://universe-intern.unibas.ch. Thanks
Payment Obligations, Liquidity Management, and the Demand for Central Bank Balances
Journal
Journal of monetary economics
Volume
50
Number
2
Pages / Article-Number
419-432
Keywords
payment systems, reserve requirements, bank behavior
Abstract
We develop a model in which a bank's demand for reserves depends on the joint distribution of transactions, reserve requirements, and the interest rate. By devoting resources to its liquidity management, a bank can save on costly reserves required to settle its payments on time. We test the model with data from the largest banks in the Swiss Interbank Clearing system. We find that the turnover ratio (the speed with which a bank turns over its reserves in the payment system) depends largely on the aggregate value of its payments. We also find that reserve requirements impose a highly uneven burden on the banks.