de nederlandsche bank eurosysteem general framework and overview carlo winder conference financial...

De Nederlandsche Bank Eurosysteem

GENERAL FRAMEWORK AND OVERVIEW

Carlo Winder

Conference Financial Sector of Macedonia on Payments and Securities Settlement Systems

Ohrid 23 June 2008

De Nederlandsche Bank


Agenda

Definitions and Concepts

Role of central banks

International developments



IT´S ALL ABOUT

FINANCIAL STABILITY



SCOPE

MONETARY STABILITY: stable currencyFINANCIAL SECTOR STABILITY: reliable

financial institutionsPAYMENT SYSTEM: smooth and secure

payments


Mission of the central bank

De Nederlandsche Bank

Safeguarding the stability of the financial system and the institutions that are part of it, by contributing to the monetary policy of the Eurosystem

supervising the financial soundness and integrity of financial institutions

promoting the smooth functioning of the payments system


Payment systems policy

OBJECTIVES

MAIN GOALto promote safe and efficient payment and

settlement systems

Other goals (central bank specific)e.g. crime prevention, effective competition,

consumer protection, accessibility


Payment system is all about trust...

Trust Trust Trust Trust Trust

Currency

Issuer

Payment system

Authenticity

Constitutional state


Importance payment systems

Payment systems …

… facilitate the exchange of goods and services

… are necessary to conduct monetary policy

… can be transmission channels of ‘disturbances’ (financial crises)


buyer seller

good/service

debit paymentinstruction

bank bank

paymentinstruction

debit credit

credit

paymentinformation

paymentinformation

CENTRAL BANK

Payment chain


Payment chain

buyer seller

good/service

debit paymentinstruction

CENTRAL BANK

bank bank

paymentinstruction

debit credit

creditpaymentinformation

CLEARING

paymentinformation

ACH


RETAIL PAYMENTS

buyer seller

CENTRAL BANK

bank bank

Payment chain


WHOLESALE PAYMENTS

buyer seller

bank bank bank bank

CENTRAL BANK

Payment chain


Payment Pyramid - Eurosystem


Retail versus wholesale payments

Low value ↔ Large value

High volume ↔ Low volume

Consumers and ↔ Financial institutions businesses

Time less important ↔ Time critical

Low systemic risk ↔ High systemic risk


RETAIL PAYMENTS

TRENDS/ISSUES

● growth of card payments

● costs of payments

● interchange fees

● innovations


GROWTH OF CARDS PAYMENTS


COSTS OF PAYMENTS

World Retail Banking Report 2005


Interchange Fees

Gresham´s law of payments

Traditionally: Bad currency drives out the good

High-cost payment instruments drive out low

cost ones


Bank Aissuer

consumer retailer

Bank Bacquirer

goods

Merchant Fee

Interchange Fee

STRUCTURE OF CARD PAYMENT


Gresham´s law of payments

UNITED STATES

Competition between credit card schemes

higher prices because of interchange fees


Innovations

EXAMPLES

• internet banking, on line banking

• biometric identification

• contactless cards


WHOLESALE PAYMENTS

DNS: Deferred Net SettlementMultilateral, usually at the end of the day

RTGS: Real Time Gross Settlementcontinuous (real-time) settlement of funds

transfers individually on an order-by-order basis


WHOLESALE PAYMENTS

TRENDS/ISSUES

● Liquidity management Real time settlement → higer demands on

liquidity management T2: range of tools to control, monitor and

manage liquidity

● Operational resilience, e.g. as a result of global interdependencies


Securities Settlement Systems

A typical settlement transaction has Cash LegSecurities Leg

and involvesCSD: Central Securities DepositoryLVPS: Large Value Payment SystemCCP: Central Counterparty



LVPS

CSD

BANK A BANK B


Interfaced / Integrated Model

InterfacedCSD has the securities account, CB the cash

account. Communication through an interface

IntegratedCB or CSD operates both the cash and

securities account, e.g. CB outsources cash settlement CB insources securities settlement



LVPS

CSD

BANK A BANK BCCP



CSDs settlement of securities transactions depository of securities corporate actions

CCPs buyer to the seller seller to the buyer often uses multilateral netting (clearing) contributes to efficiency, mitigates risk



TRENDS/ISSUES

Settlement risks (DVP) Multiple platforms Cross border links (global

interdependencies)


Large Value Payment Systems


CLS

CLS: Continuous Linked Settlement

● FX Risks

● basically a ´guaranteed refund´ scheme, i.e. you will either receive the correct currency or a refund


Traditional cross border transaction

NCB A

D BANK A2BANK A1

NCB A

D BANK B2 C

NCB B

BANK B1


Bank 2Bank 1

Yen

Japanese payment system

US$

US payment system

A: Japanse corresponden

t

B: Japanse corresponde

nt

B: US corresponden

t

A: UScorresponde

nt

Correspondent banking: FX transaction


CLS BankCLS Bank

Continuous Linked Settlement CLS


Yen

Bank B

Bank AA:

Settlement

member

B:Settleme

nt member

CL

S B

AN

K

US $

A:

Settlement

member

B:Settleme

nt member

FX transaction, via CLS


POLICY OBJECTIVES OF CENTRAL BANK

MAIN GOAL

promote safe and efficient

payment and

settlement systems


How to Achieve Policy Objectives?

OPERATIONS

OVERSIGHT

CATALYST


Operational role central bank

Issuance and distribution of cashOperator large value transfer systemSettlement services retail transactionsCash settlement securities transactionsClearing services retail payments Operator securities settlement systemOther securities related servicesPublic sector payments


Oversight

‘a public policy activity focused on the safety and efficiency of systems, in particular to reduce systemic risk’.


Oversight

Scope central bank oversight varies:

just systemically important systems, including securities settlement systems

including retail systems

Including payment instruments


Catalyst

Case for intervention, but not necessarily regulation or operations

‘Third way’ - ‘guide’ the market, by promoting initiatives and co-operation

between stakeholdersbetween other public authorities, e.g. - Government- Competition authorities


Securitiessettlement

RetailLargevalue

Operations

Oversight

Catalyst

Minimal role


Emphasis on oversight (e.g. DNB)


RetailLargevalue

Operations

Oversight

Catalyst


Emphasis on operations (e.g. Fed)


RetailLargevalue

Operations

Oversight

Catalyst


International developments

KEY WORDS

Globalization Consolidation Financial Sector

NEED FOR FURTHER COOPERATION National Supervisors Competition Authorities Government● International


International cooperation

Bank of International Settlements

Main CommitteesBCBS (Bazel Committee of Banking Supervisors) CPSS (Committee on Payment and Securities Settlement)CGFS (Committee on Global Financial Stability) Irving Fisher Committee on Central Bank

Statistics


NSCC

Clearnet

LondonClearingHouse

CDiCG

CCAS

JSCC

Austraclear

Euroclear

SIS

CREST

Clearstream

SCLV

Monte Titoli

OM-VPC

VPS

VP

HKSCCJasDec

Chess

CDP

CDS

CHAPS

FedWire

SIC

ELLIPSTBF/ TOP

BI REL

SLBE

LVTS

RTGSPLUS

LIPS-Gross

MEPS

BoJ-NetRITS RTGS

CLS Bank

DEBES

E/ K RIX

BoF-RTGS

APK

SWIFT-RTGS

ARTIS

OeKB

HERMES

BOGS/ CSD

SPGT

SITEMEInterbolsa

EuroCCP

DTC

Trad

ition

al Exc

hang

es

Elec

troni

c Com

mun

icatio

ns N

etwo

rks

Alte

rnat

ive Tr

adin

g Sy

stem

s

Over

The

Cou

nter

Tra

ding

STP Pr

ovid

ers

Traditional Exchanges

Electronic Comm

unications Networks

Alternative Trading Systems

Over The Counter Trading

STP Providers

Trad

ition

al Exc

hang

es

Elec

troni

c Com

mun

icatio

ns N

etwo

rks

Alte

rnat

ive Tr

adin

g Sy

stem

s

Over

The

Cou

nter

Tra

ding

Traditional Exchanges

Electronic Comm

unications Networks

Alternative Trading Systems

Over The Counter Trading

STP Providers STP Pr

ovid

ers

CCPs

CSDs

RTGS

CLS

TARGET

CSD Links

2nd wave CLS currency


Financial European integration – why?

EURO AREA: 13 National Markets

Limitations on Competition

Diseconomies of Scale

Inefficiencies wrt cross-border flows of money, securities and collateral


Financial European integration – how?

1. INSTITUTIONAL ARRANGEMENTS

2. FINANCIAL MARKETS

3. INFRASTRUCTURES →payment and securities settlement systems

INFRASTRUCTURES Essential for Financial Stability Central Banks Play Key Role


Financial European integration – how?

EURO AREA PROJECTS

TARGET 2TARGET 2 SecuritiesCCBM2SEPASECA


THNX

de nederlandsche bank eurosysteem general framework and overview carlo winder conference financial...

Documents

financial system

financial soundness

securities account

efficient payment

cash account

large value payment

cash settlementcb

accessibilitypayment