Fresh and friendly payments and securitiessettlement systems
Michiel van Doeveren
Sixth Macedonian Financial Sector Conference onPayments and Securities Settlement Systems
Ohrid, 1-3 July 2013
Gabriel Metsu 1626-1674:Vegetable Market in Amsterdam
Agenda
Definitions & objectives
Roles of central banks inpayment systems
Financial crisis
Financial integration
Discussion points
Role of central banks
It’s all about
Financial Stability & Confidence
De Nederlandsche Bank:
Safeguarding the stability of the financial systemand the institutions that are part of it, by
•Contributing to the monetary policy of theEurosystem
•Supervising the financial soundness and integrityof financial institutions
•Promoting the smooth functioning of the paymentsystem
Mission of the central bank
Payment systems policy
Main goal:
•To promote reliable, efficient and secure payment andsecurities settlement systems
•Other goals: central bank specific
• Crime prevention
• Effective competition
• Consumer protection
• Reachability & accessibility
• Research and statistics (knowledge centre)
Organisation of DNB
•Executive board
•Divisions
•Departments
•1650 people
Cash and Payments Systems Division:
•Payments Systems Policy Department
•Payments and Securities Department
•Oversight Department
•Cash Policy Department
How to achieve policy objectives?
•Operations
•Oversight
•Catalyst
Operational role of a central bank
•Issuance and distribution of cash
•Operator large value payment system
•Settlement services retail transactions
•Cash settlement securities transactions
•Retail payments clearing services
•Operator securities settlement system
•Other securities related services
•Public sector payments
Oversight
‘A central bank activity focused on the safety andefficiency of payment and securities settlementsystems, in particular to reduce systemic risk’
Catalyst
•There is a case for intervention, but notnecessarily via regulation or operations
•‘Guide’ the market, by promoting initiatives andcooperation
•Between stakeholders
•Between other public authorities
• Government
• Competition authorities
Payment systems …
… facilitate the exchange of goods and services
… are necessary to conduct monetary policy
… can be transmission channels of ‘disturbances’(financial crises)
Importance of payment systems
Payment system (1)
Funds Transfer System: a formal arrangementbased on a private contract or legislation, withmultiple membership, common rules andstandardised arrangements, for the transmission,clearing, netting and/or settlement of monetaryobligations arising between its members.
Source:ECB
The set of instruments, banking procedures andinterbank funds transfer systems which facilitatethe circulation of money in a country or currencyarea.
Source: ECB
Payment system (2)
buyer
seller
good/service
debit
payment
instruction
bank
bank
payment
instruction
debit
credit
credit
payment
information
payment
information
clearing
Payment Chain
•RetailLarge value
•Low value ↔ Large value
•High volume↔ Low volume
•Consumers and ↔ Financial
•businesses institutions
•Time less important↔ Time critical
•Low systemic risk↔ High systemic risk
Retail versus wholesale payments
Payments pyramid - Eurosystem
Average daily number of transactions(millions)
Average daily value of transactions (EURbillions)
Wholesale PSSource: ECB
Retail PS
Wholesale PS
Retail PS
Wholesale: 0,6% in terms ofnumber…..
…..but 97,7% in terms ofvalue
Major Large Value Payment Systems inthe World
Wholesale payments (1)
•DNS: Deferred Net Settlement (netting)
•Multilateral, usually at the end of the day
•RTGS: Real Time Gross Settlement
•continuous (real-time) settlement of fundstransfers individually on an order-by-orderbasis
•Hybrid systems
Wholesale payments (2)
Trends/issues:
•Liquidity management
• Real time settlement → higher demands onliquidity management
• TARGET2: range of tools to control, monitorand manage liquidity
•Operational resilience and business continuitymanagement as a result of globalinterdependencies.
What is Business Continuity?
•Business Continuity Management: a whole-of-business approach, that includes policies,standards, and procedures, to ensure (critical)operations can be maintained, or restored in atimely fashion, in the event of a disruption.
•Its purpose is to minimise the financial, legal,reputational and other material consequencesarising from disruptionSource: BIS 2005
Trends at the POS – euro area
POS payment transactions (billions)
Source: ECB
Remote trends – euro area
Remote payment transactions (billions)
Source: ECB
Source: BIS, Statistics on payment andsettlement systems – figures for 2011Preliminary release.
Trends at the POS – world wide
Average yearly growth debit & credit card payments
(2006 – 2011)
Issues in Retail Payments
•Efficiency
•Security
•More electronificationand less paper based:Internet banking andcard payments
•Innovations: products and markets
•Political influence, legislation and standards
•Business models –interchange fees
Securities chain
trading
clearing
settlement
Agreement toexchange securities forfunds
Calculation of obligations
Delivery of securitiesand payment of funds
Securities Settlement Systems
LVPS
CSD
BANK A
BANK B
A system which allows the transfer of securities,either free of payment (FOP) or againstpayment (delivery versus payment)
Source: ECB
•A lot of market parties and financial authoritiesare involved in the national payment system
•Not all needs are catered for in purelycommercial context
Need for cooperation!
Stakeholder involvement
•For users: better knowledge of developmentsand possibilities; possibility to jointly expresswishes and concerns
•For banks: better knowledge and understandingof wishes, needs, possibilities anddevelopments; possibility to explaindevelopments
Benefits of stakeholder involvement
•Policygroup on Payments Systems
•Working Group on Payments
•Working Group on Securities
•National Forum on the Payment System
•National Forum on SEPA-Migration
Dutch approach of involving the nationalstakeholders
National Forum on the Payment System
•Objective: contributing to an efficientorganisation of the Dutch retail payment systemfrom a social point of view
•Issues regarding:
Accessibility
Efficiency
Security
Technological developments
Financial crisis (1)
Key words:
•Excessive optimism
•Excessive risk appetite
Aspects:
•Relative stability (the great moderation, Bernanke)
•Search for yield
•Easing criteria for credit (subprime, alt-a etc)
•Innovations (originate-to-distribute model, monoliners etc)
Financial crisis (2)
What’s Next?
•Credit crunch
•Stock markets
•Banking Sector
•Insurance sector
•House prices
•Pension funds
•World recession
•Protection
•Country risks
•Euro
•European bankingsupervision
•Improve risk management
•Enlarge transparency
•Further cooperation between public authorities
•Reform supervision
•Improve crisis management
Recommendations of Financial StabilityForum
Payments and securities infrastructure
-Web of global interdependencies(LVPSs, CCPs, CSDs, Banks)
-With tight deadlines(RTGS, DVP, PVP)
Key words:
•Technological developments
•Globalization
•Consolidation in financial sector
Source: BIS, The Interdependencies of payment and settlement systems 2008
Financial European integration – why?
Euro Area: 17 National Markets (EU 28 countries)
Limitations on competition
Diseconomies of scale
Inefficiencies with reference tocross-border flows of money,
securities and collateral
Financial European integration – how?
1.Institutional arrangements
2.Financial markets
3.Infrastructures → payment and securitiessettlement systems
Infrastructures:
•Essential for financial stability
•Central banks play key role
Discussion points
•What are recent changes in your country withrespect to payments and securities settlementsystems?
•How does your central bank fill in the differentroles in PSSS?
•Do you agree with the need of bringing togetherstakeholders for the development of paymentand securities settlement system? How do youorganise this?
