Economics, Econometrics and Finance
3 years ago

New auto-collateralization scheme slashes liquidity needs and reduces credit risks!

The Journal of Financial Market Infrastructures
Auto-collateralization as a liquidity-saving mechanism
Søren Korsgaard

Paper Summary

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Auto-collateralization can help save money in a securities settlement system by using collateral more efficiently. It reduces the need for extra cash without slowing down transactions. This system also lowers the risk of not having enough money to cover payments during the day. The benefits are bigger when payments going in and out of the system don't match up. Plus, auto-collateralization can protect against money problems if someone in the system can't pay what they owe.