Operational problems in banks – Effects on the settlement of payments in Norges Bank

Abstract

We analyse the robustness of the settlement process in the Norges Bank settlement system (NBO) to operational problems in one of its participating banks. The analysis is based on a large number of simulations using actual payments data. We find that of the 21 banks directly participating in NBO, only four are of systemic importance in the sense that their inability to send payments would have a significant effect on the other banks in the system. Moreover, the level of such systemic risk varies substantially, depending on the liquidity available to individual banks and on overall activity in the system. On most days, the systemic effects would be limited due to benign liquidity conditions in the system. Furthermore, we find that the systemic effects can be significantly reduced if banks react quickly by postponing their outgoing payments to the stricken bank.