Settlement liquidity in the Colombian large-value payment system: the role of reserve requirements

This paper analyzes the intraday timing of transactions in Colombia’s large-value payment system (CUD) from 2018 to 2025, focusing on how changes in reserve requirements affect liquidity management by financial institutions. Using high-frequency transaction data, we document that reductions in reserve requirements in April 2020 and September 2024 are associated with a shift of settlement activity toward later hours of the day. The effects are heterogeneous, as smaller institutions remain more dependent on
marginal liquidity and incoming payments in an interdependent payment network. We also find that the launch of the new Central Securities Depository (DCV) system in April 2024, along with changes in payment volume and value, further reinforces the move toward later settlements. Greater reliance on intraday repos relative to reserves has also reduced early-day activity while improving liquidity management later in the business day.