8.3.2.2 Payments Default

In this assumption, certain risky counterparties are assumed to default on their payments. Here, incoming payments from the respective counterparty type reduces to an extent as specified in the assumption definition. The counterparty is chosen through a dimensional selection.

For example, consider the following payments made and received for a legal entity- payment system combination.

Table 7-39 Payment details for a legal entity

Time stamp	Payments Received		Payments Made
	Payments	Counterparty Type	Payments	Counterparty Type
9:00	100	A
9:15	30	A	40	C
9:30			90	C
9:45	60	A	150	B
10:00	30	C	100	B
10:15	90	B	300	A
10:30	45
10:45	89	B	70	D
11:30	90	C	100	B
12:00	56	C	90	E
12:15			70	E
12:30	78	A	100	B
13:15			20	C
13:30	96	E
14:30	200	E	200	D
15:00	250	A
15:15	300	B	87	D
15:30	60	B	40	E
15:45
16:00	50	E	99	A
16:15			60	B
16:30	40	D
16:45
17:00

Assuming that one of the counterparty types A is in complete default (100%). This means that the incoming payment from A reduces to zero. The payments to be received by A flows normally. The new set of Inflows and Outflows are as follows:

Table 7-40 Inflows and outflows details

Time stamp	Payments Received		Payments Made
	Payments	Counterparty Type	Payments	Counterparty Type
9:00		A
9:15		A	40	C
9:30			90	C
9:45		A	150	B
10:00	30	C	100	B
10:15	90	B	300	A
10:30	45
10:45	89	B	70	D
11:30	90	C	100	B
12:00	56	C	90	E
12:15			70	E
12:30		A	100	B
13:15			20	C
13:30	96	E
14:30	200	E	200	D
15:00		A
15:15	300	B	87	D
15:30	60	B	40	E
15:45
16:00	50	E	99	A
16:15			60	B
16:30	40	D
16:45
17:00

In the above example, the counterparty is in complete default.

However a partial default in payments can also be defined. This can be defined by using the Assumption Unit in the Business Assumptions window. This consists of two options, Percentage and Value.

In case of a partial default, the remaining payments need to be shifted to a ‘Residual’ time bucket. If this bucket is specified at a higher level, the remaining payments are dispersed equally among the lower level buckets.

Examples: If Assumption unit is in %, and 70% is the specified value, then 70% of the payments of the particular counterparty type is defaulted. The remaining 30% of payments is redistributed in the residual time bucket equally.

Note:

1. The assignment method in payments default is only Selected time bucket.
2. When Assignment unit= value, the value specified is the value defaulted by the specific dimensional combination
3. By default, if no value/percentage is given, the assumption unit appears as 0 for the possible dimensional combinations.
4. Residual time bucket is within the from time bucket or outside it.

For example, from 11:00:00 to 12:00:00; residual bucket: 11:45:00- 12:00:00

Or from bucket: 12:00:00 to 13:00:00; residual bucket: 14:15:00-14:30:00

The metrics affected by this assumption are as follows:

• Daily Maximum Intraday Liquidity Usage
• Total Payments
• Throughput