Net settlement

Abstract: Following the ongoing debate on risks in interbank payment networks, gross settlement systems are being adopted in several industrialized countries. These systems, which effect real-time transfers of monetary base among bank accounts, add management of intraday liquidity to the duties traditionally performed by central banks, and require new, ad hoc policy instruments. The paper presents a simple model of a real-time gross settlement (RTGS) system, which is used to analyze the reaction of banks and monetary policy variables to this new environment. It is shown that if daylight liquidity is costly, a network externality may induce banks to postpone payment activity, thereby affecting the quality of the information available to counterparts for cash management purposes. The increased noise may in turn induce higher than optimal levels of banks' end-of-day reserve holdings, relative to a social optimum, with adverse effects on expected profits. The rise of a daylight market for funds, predicted by the model, does not solve the mentioned externality problem. Some corrective policy measures are discussed.

Abstract: A financial transaction system in which a participant may make a purchase of goods or services from a merchant using an access device such as a payment card. Upon approval, the transaction is routed for net settlement of all funding to a Program Manager that applies logic to the transaction to calculate a merchant funded loyalty reward to the participant and administration and bank association fees. The bank association funds the merchant's account net rebate and other fees. The participant's rebate, if in cash, is placed in an investment account which may be interest bearing and is distributed upon the occurrence of an event such as retirement. The rebate provides the participant a convenient way to save money while also providing business benefits to the merchants.

Abstract: In this article, we consider the relative merits of net versus gross settlement of interbank payments. Net settlement economizes on the costs of holding non-interest-bearing reserves, but increases moral hazard problems. The 'put option' value of default under net settlement can also distort banks' investment incentives. Absent these distortions, net settlement dominates gross, although the optimal net settlement scheme may involve a positive probability of default. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Abstract: System and methods for facilitating the settlement of financial accounts across different entities utilize a host computer system that tracks financial transactions made at each merchant location or store and uses this information to reconcile accounts across different entities. In one embodiment, the host computer periodically performs a net settlement analysis of the transactional data received from each entity's stores. A request is prepared to transfer funds from each entity's bank account having a positive net settlement amount into a central entity bank account. A request is also prepared to transfer funds into each entity's bank account having a negative net settlement amount from the central entity bank account.