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Developments of Payments & Securities Settlement Systems

This conference explores the actual developments and trends in payments and securities settlement systems, with a focus on the role of central banks in promoting financial stability. Topics include retail and wholesale payments, innovations in payments, liquidity management, securities settlement systems, and the operational role, oversight, and catalyst function of central banks.

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Developments of Payments & Securities Settlement Systems

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  1. De Nederlandsche Bank Actual Developments of Payments and Securities Settlement Systems Michael van Doeveren 2nd Conference of the Macedonian Financial Sector on Payments and Securities Settlement SystemsOhrid 29 June 2009

  2. Agenda • Definitions and Concepts • Role of central banks • Actual developments

  3. International developments FINANCIAL CRISIS CRISIS MANAGEMENT

  4. Role of central banks IT´S ALL ABOUT FINANCIAL STABILITY

  5. 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

  6. 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

  7. 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)

  8. Payment chain CENTRAL BANK bank bank RETAIL PAYMENTS seller buyer

  9. Payment chain CENTRAL BANK WHOLESALE PAYMENTS bank bank bank bank buyer seller

  10. 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

  11. Payment Pyramid - Eurosystem

  12. Payment Pyramid - Eurosystem

  13. Trends in payments in the EU Source ECB

  14. EFFICIENCY: Room for improvement? Value of banknotes and coins as a % of GDP Source ECB,NBU,IMF,HNB Note: Data Ukraine and Macedonia excl imprinters

  15. EFFICIENCY: Room for improvement? Number of card payments as a % of national payments

  16. EFFICIENCY: Room for improvement? Number of POS terminals per million inhabitants Source ECB,NBU Note: Data Ukraine and Macedonia excl imprinters

  17. Paper ratio of giro transfers The Netherlands Macedonia Including: Credit transfers,Direct Debits, cheques Source: DNB, NBRM

  18. RETAIL PAYMENTS TRENDS/ISSUES ● growth of card payments ● costs of payments ● interchange fees/business models ● innovations

  19. GROWTH OF CARDS PAYMENTS

  20. COSTS OF PAYMENTS World Retail Banking Report 2005

  21. Innovations • EXAMPLES • Internet banking • E-invoicing • Biometric identification • Contactless cards • M-payments

  22. 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

  23. WHOLESALE PAYMENTS TRENDS/ISSUES ● Liquidity management • Real time settlement → higher demands on liquidity management • T2: range of tools to control, monitor and manage liquidity ● Operational resilience, e.g. as a result of global interdependencies

  24. TARGET2 in Europe Countries on TARGET2 ---- of which € Other EU-countries

  25. 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

  26. LVPS BANK A BANK B CSD Securities Settlement Systems

  27. 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

  28. 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

  29. Securities Settlement Systems TRENDS/ISSUES • Settlement risks (DVP) • Multiple platforms • Cross border links (global interdependencies)

  30. Large Value Payment Systems

  31. How to Achieve Policy Objectives? • OPERATIONS • OVERSIGHT • CATALYST

  32. 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

  33. Oversight • ‘a central bank activity focused on the safety and efficiency of payment and securities settlement systems, in particular to reduce systemic risk’.

  34. Oversight Scope central bank oversight varies: • just systemically important systems, including securities settlement systems • including retail systems • Including payment instruments

  35. 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

  36. Emphasis on oversight (e.g. DNB) Large value Retail Securities settlement Operations Oversight Catalyst

  37. Emphasis on operations (e.g. Fed) Large value Retail Securities settlement Operations Oversight Catalyst

  38. International developments KEY WORDS • Globalization • Consolidation Financial Sector • NEED FOR FURTHER COOPERATION • National • Supervisors • Competition Authorities • Government ● International

  39. International developments Business Continuity Management

  40. International cooperation Bank of International Settlements Main Committees • BCBS (Basel Committee of Banking Supervisors) • CPSS (Committee on Payment and Securities Settlement) • CGFS (Committee on Global Financial Stability) • Committee on Central Bank Statistics

  41. Financial European integration – why? • EURO AREA: 16 National Markets • Limitations on Competition • Diseconomies of Scale • Inefficiencies wrt cross-border flows of money, securities and collateral

  42. Financial European integration – how? • INSTITUTIONAL ARRANGEMENTS • FINANCIAL MARKETS • INFRASTRUCTURES →payment and securities settlement systems INFRASTRUCTURES • Essential for Financial Stability • Central Banks Play Key Role

  43. Financial European integration – how? EURO AREA PROJECTS • TARGET 2 • TARGET 2 Securities • CCBM2 • SEPA • SECA

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