Bank of Finland’s Payment And Settlement System Simulator (BoF-PSS2)
From Payment and Settlement System Simulator
The Bank of Finland provides a simulator called BoF-PSS2 for replicating payment and securities settlement systems. The simulator is adaptable for modelling multisystem setups that can be a combination of payment, securities settlement systems and CCP’s. The simulator is known to be unique and the first of its kind. Since its launch in 2002 it has been distributed to more than 90 countries and has contributed to numerous studies and research papers.
The simulator can be used to fulfill some of the regulatory requirements stated in the PFMI’s and BCBS requirements such as identifying the liquidity risks inpayment systems. Here under are topics the simulator can be used for:
- Settlement, liquidity and credit risks in FMI’s
- Systemic Risks and Counterparty risks in FMI’s
- Identification of critical counterparts
- Policy change impact evaluation
- Network analysis
- Liquidity dependency analysis
- Relationship analysis of Monetary policy and liquidity needs for settlement of payments
- Evaluation of sufficiency of liquidity buffers and margins
- System merger effects on liquidity needs
- System performance benchmarking
- Netting algorithm testing and development
- System development and prototyping
In comparison to static calculations of indicators, the simulation results naturally incorporate network (or systemic) effects rising from the payments flows and the technical properties of the infrastructures themselves. The results obtained from simulations are directly interpretable and have a self-evident meaning which is not always the case with all indicators. The results can directly be used for risk management purposes for example when evaluating the sufficiency of liquidity buffers and margins. Computer simulations take advantage of using the available information in full without losing micro-level information due to indicator aggregations.
The simulator is freely available for research purposes, and has already been introduced in numerous countries. It is possible to tailor and adapt the simulator to specific payment systems. Several adaptations of the simulator have already been made, eg. for TARGET2. The simulator team provides trainings, consultation and tailored adaptations which are priced for cost recovery. The training course aims at providing necessary skills for efficient use of BoF-PSS2 with hands on computer class exercises. It also presents numerous examples from real studies where the tool has been used. For more details see the training course outline. Minimum attendance to the session is four participants.
Basically, trainings are organised upon demand and it is also possible to order a training course to be held onsite outside the proposed dates.
From Payment and Settlement System Simulator / Product Page
From Payment and Settlement System Simulator / Documentation page
The Bank of Finland Payment and Settlement System Simulator, version 2 (BoF-PSS2), is a powerful tool for payment and securities settlement system simulations. The simulator supports multiple system structures and various settlement models.
The simulator is designed for analysing liquidity needs and risks in payment and settlement systems. Special situations, often difficult or impossible to test in a real environment, can be readily simulated with BoF-PSS2. Thus, users can study how behavioral patterns and changes in policy and conventions impact the payment and settlement systems and participants. The efficiency of gridlock-resolution and liquidity-saving measures can be analyzed as well.
The application is divided into three sub-systems:
- Input sub-system for preparing and defining the input data,
- Execution sub-system for running simulations,
- Output sub-system for basic analyses of simulation results.
Different settlement logics are implemented into separate algorithms. To replicate specific systems, appropriate algorithms must be selected with appropriate parameters. Different algorithm combinations can be used to replicate a large number of current and potential settlement conventions and structures. Real-time gross settlement systems (RTGS), continuous net settlement systems (CNS), deferred net settlement systems (DNS) and hybrid systems can be implemented with the simulator as well as securities settlement and multicurrency systems. Inter-system connections and bridges make it possible to define multi- system environments consisting of various types of interdependent systems. E.g. it is possible to replicate the interaction of RTGS and securities settlement systems.
Advanced users of BoF-PSS2 can define and build their own user modules/algorithms and expand the basic features of the simulator to analyse new types of settlement processes. It is also possible to implement agent based modeling by adding algorithms replicating the participants’ behavior and decision making to control and alter the flow of submitted transactions. As a later addition, the simulator also has a network analysis module for generating networks and network indicators from either input data or results of simulations.
BoF-PSS2 has an easy to use graphical user interface. It is also possible to automate the use of the simulator via its command line interface (CLI).
From Payment and Settlement System Simulator / Product Page
A separate TARGET2 simulator version of BoF-PSS2 has been developed and delivered for the European System of Central Banks. It is based on the same basic software architechture and features of BoF-PSS2. Additional features are implemented as separate algorithm modules which replicate the proprietary algorithms of actual TARGET2 system. It is used by Eurosystem for quantitative analyses and numerical simulations of TARGET2.
TARGET2 simulator has been jointly delivered by Suomen Pankki (Bank of Finland) and the 3CB (Banca d’Italia, Deutsche Bundesbank, Banque de France) based on a decision of ECB Governing Council.
- Liquidity Simulator
- Payment System
- Risk Management
- Financial Stability
- Cascades of Failures
- Congestions and Delays
- Financial Market Infrastructures
- Payment Networks
- Simulation Analysis
- Intraday Payments
- Harry Leinonen
- Tatu Laine
- Matti Hellqvist
- Kimmo Soramäki
Key Sources of Research:
Payment and Settlement System Simulator – A tool for analysis of liquidity, risk and efficiency
Bank of Finland Payment and Settlement Simulator
BoF-PSS2 Technical structure and simulation features
Payment and Settlement System Simulator
Quantitative analysis of financial market infrastructures: further perspectives on financial stability
Diagnostics for the financial markets : computational studies of payment system : Simulator Seminar Proceedings 2009-2011
Simulation analyses and stress testing of payment networks
Simulation studies of liquidity needs, risks and efficiency in payment networks : Proceedings from the Bank of Finland Payment and Settlement System Seminars 2005-2006
Liquidity, risks and speed in payment and settlement systems : a simulation approach
Simulation Analysis and Tools for the Oversight of Payment Systems
Utilizing the BoF simulator in quantitative FMI analysis
Banco de México
Intraday patterns and timing of TARGET2 interbank payments
Communities and driver nodes in the TARGET2 payment system
Marco Galbiatiy, Lucian Stanciu-Vizeteuz
June 17, 2015
Payment Delays and Contagion
Ben Craig† Dilyara Salakhova‡ Martin Saldias§
November 14, 2014
Federal Reserve Bank of New York Economic Policy Review
September 2008 Volume 14 Number 2
Special Issue: The Economics of Payments
Contagion in Payment and Settlement Systems
Applications of BoF-PSS2 simulator and how to use it in agent based models
Simulation and Analysis of Cascading Failure in Critical Infrastructure
Robert Glass, Walt Beyeler, Kimmo Soramäki, MortenBech and Jeffrey Arnold
Sandia National Laboratories, European Central Bank, Federal Reserve Bank of New York
Simulation analysis of payment systems
Simulating interbank payment and securities settlement mechanisms with the BoF-PSS2 simulator