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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
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Eurosysteem Agenda Definitions and Concepts Role of central banks International developments
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De Nederlandsche Bank Eurosysteem Role of central banks IT´S ALL ABOUT FINANCIAL STABILITY
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De Nederlandsche Bank Eurosysteem Role of central banks SCOPE MONETARY STABILITY: stable currency FINANCIAL SECTOR STABILITY: reliable financial institutions PAYMENT SYSTEM: smooth and secure payments
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De Nederlandsche Bank Eurosysteem 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
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De Nederlandsche Bank Eurosysteem Payment systems policy OBJECTIVES MAIN GOAL to promote safe and efficient payment and settlement systems Other goals (central bank specific) e.g. crime prevention, effective competition, consumer protection, accessibility
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De Nederlandsche Bank Eurosysteem Payment system is all about trust... Trust Currency Issuer Payment system Authenticity Constitutional state
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De Nederlandsche Bank Eurosysteem 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)
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De Nederlandsche Bank Eurosysteem buyer seller good/service debitpayment instruction bank payment instruction debitcredit payment information payment information CENTRAL BANK Payment chain
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De Nederlandsche Bank Eurosysteem Payment chain buyer seller good/service debitpayment instruction CENTRAL BANK bank payment instruction debitcredit payment information CLEARING payment information ACH
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De Nederlandsche Bank Eurosysteem RETAIL PAYMENTS buyer seller CENTRAL BANK bank Payment chain
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De Nederlandsche Bank Eurosysteem WHOLESALE PAYMENTS buyerseller bank CENTRAL BANK Payment chain
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De Nederlandsche Bank Eurosysteem Payment Pyramid - Eurosystem
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De Nederlandsche Bank Eurosysteem Payment Pyramid - Eurosystem
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De Nederlandsche Bank Eurosysteem 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
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De Nederlandsche Bank Eurosysteem RETAIL PAYMENTS TRENDS/ISSUES ● growth of card payments ● costs of payments ● interchange fees ● innovations
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De Nederlandsche Bank Eurosysteem GROWTH OF CARDS PAYMENTS
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De Nederlandsche Bank Eurosysteem COSTS OF PAYMENTS World Retail Banking Report 2005
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De Nederlandsche Bank Eurosysteem Interchange Fees Gresham´s law of payments Traditionally: Bad currency drives out the good High-cost payment instruments drive out low cost ones
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De Nederlandsche Bank Eurosysteem Bank A issuer consumerretailer Bank B acquirer goods Merchant Fee Interchange Fee STRUCTURE OF CARD PAYMENT
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De Nederlandsche Bank Eurosysteem Gresham´s law of payments UNITED STATES Competition between credit card schemes higher prices because of interchange fees
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De Nederlandsche Bank Eurosysteem Innovations EXAMPLES internet banking, on line banking biometric identification contactless cards
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De Nederlandsche Bank Eurosysteem WHOLESALE PAYMENTS DNS: Deferred Net Settlement Multilateral, usually at the end of the day RTGS: Real Time Gross Settlement continuous (real-time) settlement of funds transfers individually on an order-by-order basis
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De Nederlandsche Bank Eurosysteem 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
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De Nederlandsche Bank Eurosysteem Securities Settlement Systems A typical settlement transaction has Cash Leg Securities Leg and involves CSD: Central Securities Depository LVPS: Large Value Payment System CCP: Central Counterparty
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De Nederlandsche Bank Eurosysteem Securities Settlement Systems LVPS CSD BANK A BANK B
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De Nederlandsche Bank Eurosysteem Interfaced / Integrated Model Interfaced CSD has the securities account, CB the cash account. Communication through an interface Integrated CB or CSD operates both the cash and securities account, e.g. CB outsources cash settlement CB insources securities settlement
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De Nederlandsche Bank Eurosysteem Securities Settlement Systems LVPS CSD BANK ABANK B CCP
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De Nederlandsche Bank Eurosysteem Securities Settlement Systems 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
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De Nederlandsche Bank Eurosysteem Securities Settlement Systems TRENDS/ISSUES Settlement risks (DVP) Multiple platforms Cross border links (global interdependencies)
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De Nederlandsche Bank Eurosysteem Large Value Payment Systems
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De Nederlandsche Bank Eurosysteem CLS CLS: Continuous Linked Settlement ● FX Risks ● basically a ´guaranteed refund´ scheme, i.e. you will either receive the correct currency or a refund
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De Nederlandsche Bank Eurosysteem Traditional cross border transaction NCB A D BANK A2 BANK A1 NCB A D BANK B2 C NCB B BANK B1
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De Nederlandsche Bank Eurosysteem Bank 2Bank 1 Yen Japanese payment system US$ US payment system A: Japanse correspondent B: Japanse correspondent B: US correspondent A: US correspondent Correspondent banking: FX transaction
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De Nederlandsche Bank Eurosysteem CLS Bank Continuous Linked Settlement CLS
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De Nederlandsche Bank Eurosysteem Yen Bank B Bank A A: Settlement member B: Settlement member CLS BANK US $ A: Settlement member B: Settlement member FX transaction, via CLS
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De Nederlandsche Bank Eurosysteem POLICY OBJECTIVES OF CENTRAL BANK MAIN GOAL promote safe and efficient payment and settlement systems
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De Nederlandsche Bank Eurosysteem How to Achieve Policy Objectives? OPERATIONS OVERSIGHT CATALYST
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De Nederlandsche Bank Eurosysteem Operational role central bank Issuance and distribution of cash Operator large value transfer system Settlement services retail transactions Cash settlement securities transactions Clearing services retail payments Operator securities settlement system Other securities related services Public sector payments
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De Nederlandsche Bank Eurosysteem Oversight ‘a public policy activity focused on the safety and efficiency of systems, in particular to reduce systemic risk’.
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De Nederlandsche Bank Eurosysteem Oversight Scope central bank oversight varies: just systemically important systems, including securities settlement systems including retail systems Including payment instruments
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De Nederlandsche Bank Eurosysteem Catalyst Case for intervention, but not necessarily regulation or operations ‘Third way’ - ‘guide’ the market, by promoting initiatives and co-operation between stakeholders between other public authorities, e.g. - Government - Competition authorities
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De Nederlandsche Bank Eurosysteem Securities settlement RetailLarge value Operations Oversight Catalyst Minimal role
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De Nederlandsche Bank Eurosysteem Emphasis on oversight (e.g. DNB) Securities settlement RetailLarge value Operations Oversight Catalyst
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De Nederlandsche Bank Eurosysteem Emphasis on operations (e.g. Fed) Securities settlement RetailLarge value Operations Oversight Catalyst
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De Nederlandsche Bank Eurosysteem International developments KEY WORDS Globalization Consolidation Financial Sector NEED FOR FURTHER COOPERATION National Supervisors Competition Authorities Government ● International
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De Nederlandsche Bank Eurosysteem International cooperation Bank of International Settlements Main Committees BCBS ( 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
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De Nederlandsche Bank Eurosysteem
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De Nederlandsche Bank Eurosysteem 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
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De Nederlandsche Bank Eurosysteem 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
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De Nederlandsche Bank Eurosysteem Financial European integration – how? EURO AREA PROJECTS TARGET 2 TARGET 2 Securities CCBM2 SEPA SECA
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De Nederlandsche Bank Eurosysteem THNX
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