CASoS Engineering

Congestive Failure in Fedwire

Congestive failure in financial transaction networks can impact all infrastructures

Image of congested components

Diagrams of payment system interactions and relationshipsCascading failure can have devastating results within and among infrastructures. An extension of the agent-based Polynet model that simulates cascading failure, Loki Fedwire is used to identify system conditions, perturbations and network topology and conditions that lead to congestion, and, ultimately, to identify methods for reducing the likelihood and extent of congestion.

A set of Loki studies found that payment flows follow a scale-free distribution and system performance is a function of both topology and behavior – neither alone can explain system robustness to disruptions (such as the loss of a bank). Liquidity limits can lead to congestion and limit throughput, but performance can be greatly improved by moving small amounts of liquidity to the places where it’s needed. There are three time constants that control congestion: liquidity depletion time, net position return time and liquidity redistribution time through the market.