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[2012-12]Analysis on Intraday Time Structure and Implications

Research Department(Economist, Payment Systems Research Team, Payment & Settlement Systems Department(+82-2-759-6640)) 2013.01.10 5723

 

The intraday time structure refers to the changing patterns of the interest rates formed in the short-term financial markets at each time period on funds for payment and settlement. When intraday liquidity is provided effectively by the central bank, financial institutions can use the funds for settlement at any time, so that a flat intraday time structure can be maintained. If financial institutions find it difficult to obtain intraday liquidity, however, they need to secure funds for payment and settlement early during the day, which generally brings about a decreasing intraday time structure in which interest rates are higher in the mornings than in the afternoons. Where such decreasing intraday time structure shows a particularly steep downward pattern, financial institutions are likely to delay securing liquidity and postpone settlement until the deadline, causing gridlock across the entire market.

According to empirical analysis, the intraday time structure of domestic banks and foreign bank branches is relatively flat, having fluctuated within a range of ±1bp of the daily average level throughout the entire period since 2006. In contrast, the intraday time structure of financial investment companies exhibited a downward pattern to the right with the worsening of the global financial crisis, and in such a situation, difficulties in raising funds for payment and settlement may act to delay settlement. During the global financial crisis, the hourly interest rate for financial investment companies soared to 1.3bp, a 1.0 bp increase, immediately prior to the crisis, and the rate is thought to have remained at the 0.5bp level in the wake of the crisis. However, following the introduction of an intraday RP system by the Bank of Korea in February 2012, the slope of the intraday time structure is seen to have flattened out greatly.

To facilitate intraday liquidity supply, expanding supply of prime bonds including covered bonds or enhancing use of bonds through securities lending/borrowing system should be considered in preparation for a sharp rise in demand for collateral, led primarily by the introduction of Basel Ⅲ and the galvanization of the interbank RP market. Moreover, it is deemed desirable to make active use of the intraday time structure as a settlement system monitoring indicator, as it is closely linked with the seamless operation of BOK-Wire+ and other settlement systems and, above all, it can be monitored in real time.

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