The Plumbing
The Money You Need Only Until Teatime
A bank can end every day flat and still need billions at eleven in the morning. That gap is where settlement systems break.
11 min140 XP available4 challenges
A bank sends a given value of payments across the day. Much of it is matched by payments coming the other way, which it can recycle as they arrive — but only if they arrive first. The offsetting rate is how much of its outgoing flow is covered that way. What is left has to be funded: from its own reserves, or borrowed intraday from the central bank against collateral. Settling net would need almost none of it; settling gross needs all of it, every day, before anything has gone wrong.
Liquidity it must find
€6B
gross × (1 − offset)
- What netting would save
- 92.5%
(gross − net) ÷ gross
High in normal conditions — and it is the first thing to fall in a stress
Compare a normal day with one where nothing offsets, and drive the funding need above €20bn
- Try 0% — not yet
- Try 100% — not yet
- Compare a normal day with one where nothing offsets, and drive the funding need above €20bn — not yet
Answer to continue.