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The authors investigate how settlement banks in CHAPS, the United Kingdom's large-value payment system, deal with operational risk. In particular, they are interested in payments behavior towards a bank that is, for operational reasons, unable to make but able to receive payments. If other banks did not sufficiently monitor their outgoing payments, operational shocks could impact the entire payment system because the affected bank may absorb liquidity from the system. They first build a game-theoretic model in which a bank's decision to make payments depends both on whether another bank experiences operational problems, and on the time of day at which the outage occurs.
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