A liquidity black hole: What is the impact of a failing participant in a large value payment system and does time matter?

Working paper 836
Working Papers
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Published: 22 May 2025

By: Ronald Heijmans Ellen van der Woerd

This paper presents a methodology to detect potential failing participants in large value payment systems and measure the intraday impact of outages, considering Liquidity, Systemic, and Receiver Impacts. Medium and high risk thresholds are es- tablished to create a combined risk indicator. Outages of large banks can be detected within 10 minutes, while smaller banks may take over 30 minutes. Impact and risk levels vary by the size of the bank and the start time of the outage. Large banks can reach high-risk levels in 30 minutes, highlighting the need for timely detection, whereas smaller banks rarely reach high-risk levels.

Keywords: Financial market infrastructures; TARGET2; liquidity risk; operational risk; systemic risk; financial stability
JEL codes E42; E50; E58; E59

Working paper no. 836

836 - A liquidity black hole: What is the impact of a failing participant in a large value payment system and does time matter?

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Research highlights:

  1. This paper introduces a method to detect potential failing participants in large-value payment systems and measure the intraday impact of outages on liquidity of the system and receivers. 
  1. The study shows that outages of large banks can be detected within 10 minutes, while it may take over 30 minutes for smaller banks. 
  1. The impact of a participant's outage varies based on the bank's size and the time of day the outage occurs. 
  1. Implementing our method in a large-value payment system can be used to raise an alarm if a participant fails to make payments for an unusual duration and predict the potential impact of an outage. 

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