News Release
Risk Reduction in Payment and Settlement Systems (The 1996 Gilbart Lecture delivered by Eddie George, Governor of the Bank of England.)
22 October 1996
The Economic and Social Research Council Annual Lecture by Mervyn King
Failure of a payments or settlement system could have serious repercussions for the financial system, the Governor will say tonight.
He will point out that average daily traffic in the large value sterling payments system is running at £120bn, which compares with some £40bn only a decade ago.
The risk is that a payments or settlements failure by one institution could bring down others, and ultimately disrupt the financial system as a whole. He will identify the very considerable progress already made in reducing payments and settlements risk. But he will emphasise the need for further progress to be made:
"We are still some way from achieving final delivery versus payments in relation to domestic securities; and we have made very little progress up to this point in addressing Herstatt (foreign exchange settlement) risk. In a world of increasingly interdependent financial markets, it is no time to rest on our laurels."
He sets out the Bank's strategy to reduce further risk in these systems, including extending the benefits of real time gross settlement (RTGS) - already achieved in the interbank payment system - to securities settlement systems through introducing delivery versus payment (DVP).
The Governor also refers to the current debate in Europe over access to intra-day liquidity in TARGET - the project to link together national RTGS systems across Europe to allow real time settlement of large value payments denominated in euro. He says:
"The only effect of denying or restricting intra-day liquidity ... would be to increase somewhat the cost of using TARGET, and so to encourage the use of alternative, less secure, payments arrangements, such as correspondent banking arrangements or the private sector euro net settlement system."
He adds "I would hope that we will be able to resolve the issue through the ongoing technical dialogue in the European Monetary Institute as we have resolved other issues in the past. ..."
Notes to Editors
The Gilbart Lecture is an annual institution dating back to 1872. James William Gilbart was the first General Manager of the London and Westminster Bank. The lecture is hosted by King's College London and the Chartered Institute of Bankers.
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