A process control simulation of the USD wire payment system at a major Canadian bank

There is an interesting parallel between the complex continuous processes found in the chemical engineering industry and those in the financial services industry. This study applies the principles of chemical process engineering to model the USD wire payment system at a major Canadian bank using CADSIM, simulation software originally designed for the pulp and paper industry. The objectives were to build a highly visual and interactive simulation model that provides a transparent overview of the wire payment system and opportunity to evaluate process control strategies. Two financial system specific modules were developed: an account 'tank' and a 'payment' queue. Historical payment data was used to test the optimum queue strategy and overdraft limit for minimizing Fedwire overdraft charges. The model successfully demonstrated the merit of flexible, adjustable controls as the results show that monthly overdraft charges could be reduced by almost {dollar}40,000 for four of the major accounts, without significantly delaying payments. For cash managers at the Canadian bank the model could be useful as a training tool for new employees or as prototyping opportunity before large scale IT changes are implemented in the real system.