Lower reserve requirements delay wholesale settlements
Reductions in reserve requirements prompt financial institutions to shift large-value payment settlements toward later hours of the day. A study of Colombia's gross settlement system from 2018 to 2025 finds that freed liquidity is deployed into money markets before settling obligations.
Opportunity costs outweigh settlement speed
An analysis of Colombia's large-value payment system (CUD) between 2018 and 2025 demonstrates that reserve requirement reductions in April 2020 and September 2024 systematically delayed payment settlements.
While theoretical models predict faster execution from freed reserves, the September 2024 ratio cuts—which released COP 6 trillion—prompted banks to reallocate liquid funds to money market trades before settling gross obligations.
Regression results across nine value deciles show that settlement delays concentrate between the 40th and 90th percentiles.
The response varies by size: small banks settle early percentiles faster due to immediate marginal liquidity needs, whereas large banks postpone high-value settlements until late afternoon.
Infrastructure shifts and intraday repos
Structural infrastructure reforms and central bank credit operations further altered intraday timing profiles.
Following the rollout of the new Central Securities Depository (DCV) in April 2024, cumulative settlement value settled by 17:00 dropped from the 90th percentile to between the 70th and 80th percentiles.
Concurrently, a higher ratio of repos to reserves delayed early-morning activity but facilitated smoother late-day processing once central bank liquidity operations concluded.
More liquidity, higher closing friction
Releasing reserves does not mechanically accelerate settlement when banks prioritize yield over operational buffers.
Shifting high-value payments toward market close amplifies operational vulnerabilities across interconnected clearing networks.
System overseers must look beyond aggregate liquidity to monitor intraday timing risks.