Financial Stability Review
Payment and Settlement Systems Articles
2004
2005 2004 2003 2002 2001 2000 1999 1998 1997 1996
Collateral
Posting Decisions in CHAPS Sterling
(72k)
(Issue 17, December 2004)
The smooth functioning of payment systems, and in particular large-value payment systems, is important to maintaining financial stability. In the UK, the CHAPS Sterling system allows banks to make real-time sterling payments on their own behalf or on behalf of their customers. CHAPS Sterling member banks support their payments activity in CHAPS Sterling by borrowing intraday from the Bank of England. A member bank can borrow from the Bank of England if it posts collateral. But member banks post much more collateral than they appear to need to support their payment activity. As a result, CHAPS Sterling should be robust to operational incidents that temporarily prevent a member bank from making payments. A possible explanation for member banks posting more collateral than they need is that the costs of posting collateral are less than the cost of failing to make timely payments. The empirical evidence is consistent with this explanation.
Securities
Settlement Systems: Assessing their Relative Riskiness
(99k)
(Issue 17, December 2004)
Securities settlement systems are a fundamental piece of the financial infrastructure of an economy. The Bank therefore has an interest in ensuring that adequate risk mitigation techniques are employed by the securities settlement systems most used by UK market participants. In this article, we identify these systems and propose a framework for assessing the quality of their risk controls.
Continuous
Linked Settlement (CLS) and Foreign Exchange Settlement Risk
(143k)
(Issue 17, December 2004)
CLS - the international foreign exchange settlement system - was successfully launched in September 2002. Two years on, the volumes and values of transactions settled in CLS continue to grow. However, well over half of global foreign exchange settlement still appears to take place outside CLS, especially for transactions involving non-bank financial institutions such as investment funds and hedge funds. The G10 central banks and banking supervisors have made clear their interest in how banks manage settlement risk in such transactions. They continue to monitor whether enough has been done to reduce this risk, and to consider what further action might be necessary.
Assessing
Operational Risk in CHAPS Sterling: a Simulation
Approach
(200k)
(Issue 16, June 2004)
The operational resilience of market infrastructures, large-value payment systems in particular, is important to maintaining financial stability. The United Kingdom's CHAPS Sterling system, for example, allows financial institutions to settle payment obligations associated with financial market transactions; a disruption to normal payment processing activity could therefore result in the build-up of significant unwanted risk exposures. This article presents the results of a series of simulation experiments designed to assess quantitatively the ability of CHAPS Sterling to withstand certain types of operational disruption. The analysis shows that the system exhibits a high level of resilience, reflecting the effectiveness of the operational risk controls that are in place and the ample amount of liquidity available in the system.
Key Resources
|
Memorandum of Understanding between HM Treasury,
the Bank of England and the Financial Services Authority
Download PDF (50k) |
