Same payments. Two ways to settle them.
Take one book of interbank payments and settle it twice: gross and one-by-one (RTGS), then netted into a single cycle (DNS). The trade-off you feel here — liquidity versus risk — is the central design decision of every settlement system.
When payments flow both ways, netting collapses large gross values into small net movements — the classic argument for deferred net settlement.
Gridlock. At this liquidity, 6 payments cannot settle — each waits for money that never arrives. RTGS is safe (no bank is overdrawn) but stalls without enough liquidity; peak liquidity used was EUR 0.
THE BOOK OF PAYMENTS (6)
| # | FROM | TO | AMOUNT |
|---|---|---|---|
| t1 | Bank Alfa | Nordbank | EUR 60 |
| t2 | Nordbank | Bank Alfa | EUR 55 |
| t3 | Meridian Bank | Cassia Bank | EUR 40 |
| t4 | Cassia Bank | Meridian Bank | EUR 45 |
| t5 | Bank Alfa | Cassia Bank | EUR 30 |
| t6 | Cassia Bank | Bank Alfa | EUR 25 |
POSITIONS — GROSS VS NET
| BANK | OPENING | PAYS OUT | RECEIVES | NET |
|---|---|---|---|---|
| Bank Alfa | EUR 20 | EUR 90 | EUR 80 | -10 |
| Nordbank | EUR 20 | EUR 55 | EUR 60 | +5 |
| Meridian Bank | EUR 20 | EUR 40 | EUR 45 | +5 |
| Cassia Bank | EUR 20 | EUR 70 | EUR 70 | +0 |
Gross value moved: EUR 255 · settled net under DNS: EUR 10 — netting shrinks liquidity needs, but every net debit is a promise someone must fund.
The numbers as text (works without JavaScript)
Preset: Offsetting flows
When payments flow both ways, netting collapses large gross values into small net movements — the classic argument for deferred net settlement.
- Bank Alfa: opening EUR 20, pays out EUR 90, receives EUR 80, net EUR -10
- Nordbank: opening EUR 20, pays out EUR 55, receives EUR 60, net +EUR 5
- Meridian Bank: opening EUR 20, pays out EUR 40, receives EUR 45, net +EUR 5
- Cassia Bank: opening EUR 20, pays out EUR 70, receives EUR 70, net +EUR 0
Gross value: EUR 255. Settled net under DNS: EUR 10.
Sources for this lab3
- Official requirement
Principles for financial market infrastructures ↗ — CPMI and IOSCO (Bank for International Settlements) · Principles 7–9
Published by the CPSS (now CPMI) and IOSCO; contains 24 principles plus responsibilities for authorities. This site uses it only for high-level concepts such as settlement finality.
- Market practiceMarch 2003 edition
A glossary of terms used in payments and settlement systems ↗ — CPSS (now CPMI), Bank for International Settlements
Terminology has evolved since this edition; newer CPMI publications refine some definitions.
- Simplified educational illustration
Payments Signal editorial teaching models — Payments Signal
What this simplifies: Three or four banks, whole-euro amounts, one settlement cycle. Real systems add collateral, caps, throughput algorithms, and many cycles.
Used wherever diagrams, scenarios, figures, or example values are didactic constructions rather than sourced facts; every such use carries a simplifications disclosure. All people, companies, banks, and list entries in examples are fictional.