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How RTGS killed liquidity: US tri-party repo edition

Daniela Gabor is a professor of economics and macrofinance at the University of West of England, Bristol. In this post she explains how the pressures placed upon intraday liquidity by real-time gross settlement systems led to the creation of the tri-party repo market, which itself proved a central point of failure during the global financial crisis. In a recent post, Izabella Kaminska argued that Real Time Gross Settlement (RTGS) changed the way in which central banks managed systemic liquidity. RTGS and expensive intraday overdrafts at the central bank killed systemic liquidity, she argued, because “these systems do not function smoothly unless commercial banks maintain sufficiently large reserves to cover payment settlement risk”.There is a critical element to complete the puzzle of RTGS

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