Independent Review by Network Analytics and Simulation firm FNA Reveals “Powerful Liquidity Savings” Generated by CHIPS Settlement Algorithm
London-based deep tech firm FNA, specialising in advanced network analytics and simulation, has revealed the “powerful liquidity savings” generated by CHIPS, the largest private sector high-value clearing and settlement system in the world operated by The Clearing House, following an independent review.
As the importance of liquidity grows with rising interest rates and quantitative tightening, more efficient use of liquidity creates economic cost savings and allows financial institutions to deploy scarce liquidity more effectively for other purposes – benefitting not only CHIPS participants but contributing to a more efficient financial system overall.
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FNA’s review of the liquidity savings mechanism (LSM) utilised by CHIPS confirmed CHIPS is “extremely efficient” in its use of liquidity across all performance metrics, when compared to other large-value payment systems. Powered by its simulation technology and digital replicas of other high-value payment systems, and utilizing real CHIPS data, FNA’s analysis also confirmed that CHIPS’ liquidity efficiency outperformed other real high-value payment systems as well as several synthetic configurations of LSMs.
Financial institutions in the U.S. and around the world rely on CHIPS to clear and settle USD payments reliably and with settlement finality. CHIPS settles an average of $1.9 trillion in payments per day on a comparatively small funding base. Its patented liquidity savings algorithm matches and offsets payments continually, resulting in a more efficient settlement process.
“We are delighted to have successfully demonstrated the unique capabilities of the CHIPS system”, said FNA Founder and CEO, Kimmo Soramäki. “FNA’s network analytics and simulation technology provides visibility and foresight over the flow of payments, highlighting previously unseen opportunities for greater operational efficiency and resiliency. Not only has this validated CHIPS’ liquidity efficiency, but also provided TCH with opportunities to improve their system further”.
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While the benefits of liquidity savings are substantial across all phases of an interest rate cycle, they are especially pronounced in an environment of rising rates and quantitative tightening. CHIPS is the premier USD clearing platform for international payment activity, with approximately 95% of CHIPS payments being the USD leg of a funds transfer that begins and/or ends in another country.
“The liquidity efficiency of CHIPS has been well documented in academic literature and distinguishes CHIPS as a critical element of the nation’s financial system,” said Richard Dzina, Senior Vice President of Product Development, The Clearing House. “FNA’s analysis adds to this literature by uniquely using CHIPS payments data to assess CHIPS relative to other real and hypothetical systems. The results of the analysis are powerful and underscore not only the economic cost savings but also the financial stability benefits that derive from the efficient use of liquidity.”
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