[Economic Term] Loss-sharing

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Today's economic term is joint payment system.

The Bank of Korea is preparing a means of providing intraday liquidity to financial institutions that temporarily lack payment funds during the day so that fund settlements between financial institutions can be made safely and smoothly.

In this way, unlike the intervention of the central bank, the method of securing the finality of settlement by jointly sharing the outstanding debt resulting from a participating institution's payment default by other participating institutions is called the settlement deficiency fund joint sharing system.
This can occur when payment default by a specific institution triggers payment default by other institutions.
This is to prevent the collapse of the entire payment system and financial chaos. The size of the participating institution, system usage performance, and credit limit of the participating institution are used as criteria for sharing outstanding debt.

In general, when operated simultaneously with a credit limit, the credit limit provided by each participating institution to the defaulting institution is used as a standard for loss sharing. In this case, each participating institution sets the relative credit limit more carefully, thereby providing information to the participating institutions. The effect of motivating risk reduction can be expected. Unlike the defaulter pays, in which payment resources are procured through prior collateral of the defaulting institution, the joint sharing of insufficient payment funds is called survivors' pay in that the surviving institution (settlement performance institution) shares the payment resources. Also called method.

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