December 2014 issue contents
The Role of Counterparty Risk in CHAPS Following the Collapse of Lehman Brothers

by Evangelos Benosa, Rodney J. Garrattb and Peter Zimmermana


We study the impact of the recent global financial crisis on CHAPS, the United Kingdom's large-value payments system. Core infrastructures functioned smoothly throughout the crisis and settlement banks continued to meet their payment obligations. However, payments data show that in the two months following the Lehman Brothers failure, banks did, on average, make payments at a slower pace than before the failure. We show that this slowdown is related to concerns about counterparty default risk, thereby identifying a new channel through which counterparty risk manifests itself in financial markets.

JEL Codes: E42.

Full article (PDF, 29 pages, 608 kb)

a Financial Stability, Bank of England 
b Federal Reserve Bank of New York and University of California, Santa Barbara