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The authors consider the liquidity efficiency of Tranche 2 of the Large Value Transfer System (LVTS T2) by examining, through an empirical analysis, some plausible strategic reactions of individual participants to a system-wide shock to available liquidity in the system. The network structure of the LVTS T2 is found to be asymmetric in terms of the patterns of out-payment flows. It is composed of three subgroups, in which participants within a subgroup are more strongly linked with each other than with participants in other subgroups. Three possible network equilibria are proposed. The equilibria are defined in terms of participant-specific collateral needs and out-payment delays, and result from different relative cost structures involving collateral costs, queuing costs, and payment delay penalties.
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