Settlement Speed and Financial Stability

2025

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AI-generated summary

1. This paper investigates the complex relationship between settlement speed and financial stability, revealing that faster settlements do not always guarantee improved stability and can paradoxically increase systemic risk under certain conditions.
2. The paper analyzes how settlement speed impacts financial stability by considering netting benefits, liquidity costs, and counterparty risks within payment networks. It explores the trade-offs involved and identifies conditions under which faster settlement can lead to increased crisis severity.
3. The research highlights the importance of network structure and liquidity conditions in determining optimal settlement speeds and offers policy implications against a one-size-fits-all approach.
Tags: settlement speed, financial stability, payment systems, systemic risk, counterparty risk

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