72 Industry roundtable Does the payments business need new ... · Lázaro Campos, SWIFT: The...
Transcript of 72 Industry roundtable Does the payments business need new ... · Lázaro Campos, SWIFT: The...
To what extent is the distinction
between large and low value
payments eroding? Are people
willing to pay for immediate
finality where they don’t need it?
Gerard Hartsink, ABN AMRO & EPC: There is
no specific cut-off threshold for the difference
between high value and low value payments.
For customers (consumers, corporates and
governments) and for banks, the amount is
not the only relevant factor. Customer service,
counterparty risk, finality, value date and
costs are also relevant elements. Customers
(consumers and corporates) are prepared to
pay a premium for high value payments with
immediate finality.
Julie Monaco, JPMC: The distinction between
high value and low value payments is erod-
ing; some might describe it as blurring. Client
requirements are driven by the underlying
payment terms; for example - the need for
immediate or next day finality, information
requirements and cost.
The banking industry has developed payment
delivery infrastructures that facilitate this
process in a near seamless manner. As a
result, we are seeing payment channels
being used for purposes they were not built
for. The ACH channel, which was originally
designed for low value, recurring next day
transactions, is being used more often for
high value, one-time transactions. This places
an additional challenge on the industry to
maintain adequate credit and risk controls in
that environment.
Clients are willing to pay for the value-added
services that they need, including immediate
finality. The financial services industry will
Does the paymentsbusiness need newarchitecture?
Participants:(from left)
• Lázaro Campos, head of banking industry
division, SWIFT
• Gerard Hartsink, senior executive vice presi-
dent, market infrastructures,
ABN AMRO & chairman,
European Payments Council
(EPC)
• Julie Monaco, senior vice president & core
cash management business
executive JPMorgan Chase
(JPMC)
• Hansjörg Nymphius, head of methodologies &
performance management,
Deutsche Bank Global Cash
Management & chairman
Euro Banking Association
(EBA)
• Terry Quigley, head of global financial
messaging, LogicaCMG
• Marilyn H. Spearing,head of global payments and
cash management, HSBC
72 Industry roundtable
Dialogue – Q3 2004
Q3 2004 – Dialogue
The global payments landscape faces significant pressure as a result of market forces, changing customer
needs, imposed regulatory requirements and technological advances. Financial institutions are grappling
with how to rise to these challenges without devaluing existing investments and practices. To what extent
is the distinction between large and low value payments eroding? Is legacy an impediment to change?
What should the role of central banks be in the provision of payments services? And what role should
corporate customers have in shaping these services?
For its third virtual roundtable of 2004, Dialogue brought together banks, technologists and infrastructure
providers to assess the impact of these pressures on the future shape of the industry.
73Industry roundtable
want to direct clients to the payment
channel that both meets their needs and
offers the appropriate risk and credit pro-
tections to the service providers and their
clients.
Marilyn Spearing, HSBC: I do think there is
a gradual erosion between the two.
Supporting that would be the elimination
of upper limits in a lot of ACHs, creation of
technology on file format in order to flow
the transactions more easily and the ACHs
universally adopting RTGS-like settlement
approaches.
Against that – and this why the erosion will
be slow – is the question of the price dif-
ferential. Then you start getting into what
type of credit support is required for the
settlement to occur efficiently and that is
what’s driving the price differential.
We don’t actually find finality a big issue
with our corporates. Most of our customers
talk to us now about their scheduled pay-
ments versus their urgent payments. Given
that the world has organised itself around
the scheduled payments, these can be very
simply separated. The mindset of many of
our clients therefore works against the ero-
sion because it keeps payments going
down separate channels.
The final factor working against erosion is
everyone’s current investments in their exist-
ing infrastructure – not just the banks, but
the people that are asking us to clear for
them; both our corporates and the other
bank clients. They’ve already segregated
their transactions; that’s how they’re process-
ing. So to change, you’d have to invest fur-
ther in what is a very low-margin business.
Is legacy therefore an impedi-
ment to change?
Terry Quigley, LogicaCMG: If one started
with a clean sheet of paper – and some
developing countries do have such an
opportunity – then the engineering of an
infrastructure capable of handling all pay-
ment types, irrespective of source, value
and clearing cycle is feasible. The issue is
not one of technology – technology exists
now to transmit payment instructions and
clear and settle those instructions without
regard to value or type of payment instru-
ment. The issue, as has already been sug-
gested, is one of a trade off between
urgency and cost.
Typically there are not that many choices
available in a country. It is often a choice
between a service that is cheap/free at
point of use (e.g. bulk payment system)
but takes days or a higher cost RTGS sys-
tem offering immediate finality. I believe
that many payments going through RTGS
systems do not need immediate real-time
finality but they do need to be delivered
faster than the bulk payment system can
achieve.
What is required is a spectrum from slow,
boring but potentially free, up to instanta-
neous transfer of final value. We believe
that the banks’ clients will require that
spectrum and are prepared to pay accord-
ingly. The issue becomes how one makes
such a transition and who pays for the cost
‘blip’ required to achieve it.
That said, a recent opinion poll commis-
sioned by LogicaCMG showed that nearly
two thirds of corporate customers would
pay additional fees to banks for improved,
more detailed information about their pay-
ments, while a third could consider switch-
ing banks for such information. Does that
tally with the experience of this round-
table’s participants? ➢
Dialogue – Q3 2004
74 Industry roundtable
Marilyn Spearing: Information about pay-
ments is a key issue for corporate clients,
and one that HSBC is aware of. Integration
between our systems and theirs is one way
of ensuring that rich detail makes its way
through the ‘processing’ and back to the
remitter or beneficiary for full and automat-
ed reconciliation. I believe this need is also
driving the standards discussion with corpo-
rates. Their goal is better information: more
accessible and more timely. LogicaCMG’s
research doesn’t surprise me.
Hansjörg Nymphius, Deutsche Bank &
EBA: Determining the level of distinction
between large- and low-value payments
needs to be evaluated from the perspective
of each customer segment and the respec-
tive providers who are involved.
The typical retail customer would hardly
know how to tell the difference between
large and low value payments. The retail
customer’s main concern would be the ease
of effecting payments, the price, the reliabil-
ity and predictability of the transfer.
Corporate customers would make a distinc-
tion between AP/AR-related flows and
treasury-related transactions. First, bulk pro-
cessing would be looked at but the individ-
ual amount wouldn’t matter that much.
Other factors would be reliability, predictabil-
ity and price. For treasury activities, other
criteria are involved: speed, finality, cut-off
times and funding. Price sensitivity for such
treasury transaction fees is rather low.
Infrastructure providers have different priori-
ties again. Entities such as EBA look at
straight-through processing (STP), time to
process, priority queues, cash funding and
cost per transaction. Cash-saving settlement
mechanisms and finality are the corner-
stones of a competitive offering. The amount
of an individual transaction does not neces-
sarily matter as long as there is sufficient
settlement capacity in a given system,
either through reciprocal settlement streams
or participant funding. Offerings typically dif-
fer around urgency of a payment versus
lowest cost of transaction.
The requirements of banks as service
providers are very similar to those of the
infrastructure providers. An important factor
for the customer and the bank is the bank’s
ability to provide sufficient funds to get a
payment out the door in good time. The
urgency of a transaction combined with the
magnitude of the amount drive the service
level and price.
Overall, technology-wise, there is not really
a difference between large and low value,
but issues like urgency and funding really
drive differentiation. Information on and
around a payment transaction becomes a
more valuable proposition for the customer
and therefore will lead to new forms of
service definition. Clear indications of this
outcome are the numerous discussions that
we see around initiatives such as TWIST,
RosettaNet, etc. Discussions are focused less
on numbers of formats and more on what
information can be transported and provided
and how this would be done. On the other
hand, customers will only be prepared to
pay for services or components that they
require and request.
Lázaro Campos, SWIFT: The different sys-
tems themselves, both ACH and RTGS, are
becoming so sophisticated that they can
“ From a bank perspective, the issue is
not the availability of the services, but
the intelligent use of routing out of
their systems based on their needs and
those of their corporate customers.
Lázaro Campos, SWIFT
75Industry roundtable
Q3 2004 – Dialogue
handle any kind of payment. From a bank
perspective, the issue is not the availability
of the services, but the intelligent use of
routing out of their systems based on their
needs and those of their corporate cus-
tomers. Many of these decisions used to be
hard-coded. Now banks are investing in
intelligence that helps them decide how
best to route payments.
Julie Monaco: There have been several ref-
erences to the relationship between
urgency of a payment and cost. In princi-
ple, I agree that the processing of urgent
payments provides greater value to clients
and should be priced accordingly. However,
the industry cannot justify building this
capability into both high value and low
value payment channels and risk creating
redundant payment infrastructures. If pay-
ments are urgent and require immediate
advice notification to the beneficiary, they
should be delivered over the high value,
immediate finality payment channel. It is
more cost effective to enhance this channel
in order to meet urgent payment require-
ments than to consider a significant invest-
ment that upgrades the low value channel.
How much input should corpo-
rates have directly through
industry bodies such as the
EPC in the future shape of
payments infrastructure?
Marilyn Spearing: I expect banks to be
able to represent corporate requirements.
Banks should be responding to their corpo-
rate customers and if a corporate is so ill-
served that it has to sit on those industry
bodies, that suggests we’ve got the bal-
ance wrong.
Large corporates, very appropriately, are
constantly seeking greater and greater effi-
ciency at the lowest cost. They are fre-
quently looking to participate in the forums
to promote that. But they do not incur the
costs of maintaining or collateralising any
of the systems. The banks are building, col-
lateralising, ensuring settlement and main-
taining the systems that flow all of the
data. Why should corporates participate and
not the consumer associations or any other
potential user? To have only one segment
of users on the committee could open up
an imbalance.
Terry Quigley: One could argue that the
corporate lobby for representation on
Standards Committees is more a manifesta-
tion of their frustration with the services
offered than an inherent desire to set stan-
dards. If that is true, then the banks should
be responding with real service initiatives
rather than a piece of technology.
Lázaro Campos: It was never intended that
corporates would have a direct voice on the
EPC. Perhaps, as Terry says, such calls reflect
impatience at the pace of change rather than
any underlying sense of entitlement.
Gerard Hartsink: I find that corporates are
increasingly taking the initiative to stan-
dardise. Examples are TWIST, RosettaNet
and the action plan of the EACT (European
Association of Corporate Treasurers). The
involvement of merchants in the develop-
ments of POS terminals is also relevant.
The EPC has a dialogue with the EACT and
is prepared to have further co-operation in
the next steps for Euro(pean) payment
instruments and the standards involved.
Banks should maybe be adding some addi-
tional datafields in the payment chain ➢
“ The EPC has a dialogue
with the EACT and is pre-
pared to have further co-
operation in the next
steps for Euro(pean) pay-
ment instruments and
the standards involved.
Gerard Hartsink, ABN AMRO & EPC
Q3 2004 – Dialogue
77Industry roundtable
to be used for their corporate customers.
This will lead to more value-added services
and increased efficiency (reconciliation) in
the whole payment chain. It is essential that
there is full commitment on the potential
content of these additional datafields.
Julie Monaco: There are two key points
here. First, banks need to understand the
emerging payment requirements of their
corporate clients; and secondly, corporations
have their own forums that Gerard referred
to – such as TWIST and RosettaNet – to
develop their requirements and present
them to the financial services industry. When
these two factors are working together,
there would be no need for direct corporate
involvement in organisations like the EPC.
The banking industry would understand
what corporations are looking for and they
would have a sense that the requirements
have some level of support within the cor-
porate community.
There are some banks taking a leadership
role in working with corporations to develop
new payment standards and shape the
evolving payments infrastructure. There has
been some success – not broad-based – but
something we can build on.
Hansjörg Nymphius: We really have to look
at the whole process chain, end-to-end,
from customer to customer. In this respect it
is important to understand the requirements
and needs of the corporate market to build
and shape the future. Their input is needed
to get it right. In addition, co-operation
between the EPC, EBA and corporate indus-
try bodies should be fostered.
Marilyn Spearing: I agree. That’s the best
route.
Julie Monaco: Terry’s point – that corpora-
tions are interested in industry ➢
“ The ACH channel, which was
originally designed for low
value, recurring next day trans-
actions, is being used more
often for high value, one-time
transactions.
Julie Monaco, JPMorgan Chase
Dialogue – Q3 2004
78 Industry roundtable
standards bodies because of frustration
with payment service offerings – got my
attention. If banks have done their job cor-
rectly, and I believe that we have, the serv-
ices that the industry has developed over
time are based on client requirements and
have generally met the needs of the corpo-
rate community. Yes – the industry is evolv-
ing and there is new technology to consid-
er, but new development must be based
on a foundation of partnership. Banks are
willing to invest in the new technology and
develop services that meet new require-
ments. We need our corporate partners to
help with the business case by expressing
a firm interest and a commitment to use
the new services within a reasonable time-
frame. Banks will not commit to major
investments with the rationale of “build it,
and they will come”.
Is a cross-industry global pay-
ments standard a pipe-dream?
Julie Monaco: Common standards are the
cornerstone to building efficient global pay-
ment infrastructures that provide value-
added services to clients. Cross-industry
standards are used today – EDIFACT and
SWIFT XML are both examples of opera-
tional use, and have small, but enthusiastic
followings. While adoption has not made
these large-scale events, recent develop-
ments, especially with the use of IP and
related technologies, indicate that there
will be a larger community that uses these
global standards in the future.
Hansjörg Nymphius: From a technical per-
spective, a cross-industry global payment
standard would seem to be possible.
However, the challenge is that it will take
quite a long time for this standard to be
realised because we still have to cope with
national standards. These standards have
evolved over a long time, are well-perfect-
ed and therefore difficult to replace.
Gerard Hartsink: I would go further.
Corporate treasurers have repeatedly stated
that payment instruments and payment
messages should be standardised. But the
market reality is that there is no business
case for a structural migration from existing
payment instruments to new payment
instruments, either for corporates or for
banks. For the Eurozone (EU12 countries),
though, such a standardisation is expected,
because the public authorities expect the
banks to realise the SEPA.
Hansjörg Nymphius: The business case
would only hold true for those who operate
as global or at least multi-regional
providers. A global payments standard can
only show its strength if it is adopted
beyond the banking industry and really
flows end-to-end, not only from corporate
to bank to corporate but even including the
retail end. It would be great to have a
cross-industry global payments standard,
but just take Europe as an example. It can
be painful to move away from old national
environments to a pan-European scenario.
Marilyn Spearing: The business case is obvi-
ously important, but, conceptually at least,
I’ve never heard anyone opposed to getting
a better cross-industry global standard. And
we need to create the standards to give
people the time to adapt their systems. It’s
the implementation that takes so long. It
takes a while to get a change through, even
within a body such as SWIFT where everyone
is a member and is agreeing to abide by the
rules. It takes time to get systems readapted.
Lázaro Campos: It sounds appealing, but in
many cases, the issue is not the standard,
it is the market practice. The creation of
such a standard is possible but, as Marilyn
“ Co-operation between the EPC, EBA
and corporate industry bodies should
be fostered.
Hansjörg Nymphius, Deutsche Bank & EBA
Q3 2004 – Dialogue
79Industry roundtable
says, it would certainly take time to imple-
ment. Is there a market need at this point?
Different groups have been looking at this
question, but ultimately the approach of
most institutions will be pragmatic. You
invest when you can follow through. Purity
does not pay the rent.
Terry Quigley: In principle, global, fully
extensible common standards for payments
are highly desirable and are something to
which all the community should aspire.
However in the short to medium term the
issue is interoperability rather than a com-
mon standard per se.
Creating a common standard to replace
existing standards (as opposed to standard-
ising something that is currently not auto-
mated) has the paradoxical effect of
increasing the cost to participants because
they have to re-engineer their existing
technology to cope. In our experience the
business benefits must be compelling to
convince corporates to change their usual
business behaviour or practices.
We feel banks should improve their services
incrementally, without making significant
demands on the systemic and procedural
operations of their clients. In the past,
banks have been too quick to adopt major
technology initiatives that required too
much effort on the part of the corporate to
implement. In addition, I think, banks have
obsessed for too long over standards-based
solutions, when what the corporate really
requires is certainty of payments. Banks are
obsessed about standards, but to the corpo-
rates this is a bit of a red herring.
A global cross-industry standard may not be
a pipe dream, but such a standard will take
a very long time to implement because of
the sheer number of systems installed in
banks and corporates. In the meantime, we
should all be looking at interoperability and
developing translation tools.
Julie Monaco: The industry needs a process
and a plan to build upon the few successes
that we have had with global payment
standards. Should SWIFT lead the initiative?
Should they include other industry organisa-
tions? Or, are there other organisations that
should take the lead? We need to answer
these questions and establish a global oper-
ating framework if we want to move for-
ward with what everyone agrees is a
worthwhile, yet challenging, goal.
How much central bank involve-
ment do you regard as neces-
sary or prudent for the efficient
functioning of ACHs?
Gerard Hartsink: Central banks have three
principal roles for the payment industry.
These are an oversight role, a catalyst or
facilitator role and an operational role for
RTGS, high value net settlement systems,
coins & notes and, sometimes, low value
payment systems.
There is, in general, no debate on the first
two roles nor on the operational role of the
central bank in RTGS systems. Public authori-
ties have to ensure safe and efficient pay-
ment systems. The real debate is whether
central banks should be competitors in pro-
cessing retail payments. In emerging markets,
that may be the best solution. There is, how-
ever, no reason why in G10 countries like the
USA and Germany, central banks should be
involved in retail payments processing.
Marilyn Spearing: I would see the regula-
tor as separate from the central bank. The
central bank should be primarily focused on
efficiency of payment systems for the users
of payments within their jurisdiction. As
long as it is functioning effectively through
those who are charged with running the
ACH – and that’s different in every country,
some privately run, some run by banks,
some run by the central banks – I do not
see the sense of strong central bank
involvement.
They should have an oversight role, but I’m
indifferent as to whether they have an
operational role. What you are looking for
with high volume payments – that are gen-
erally low value – is efficient throughput; it’s
all about unit cost. The more regulator ➢
“ Banks need to understand the emerging payment requirements of their corporate
clients. Julie Monaco, JPMorgan Chase
Q3 2004 – Dialogue
81Industry roundtable
and central bank involvement you have,
the less likely you are to have high effi-
ciency and low unit cost. I generally
believe that there should be a light touch
from the regulator as long as soundness,
liquidity and efficiency are all in hand.
Terry Quigley: In developing countries, as
Gerard suggests, there is often a need for
the central bank to take a leading role to
ensure that something happens. In these
economies, it is the central bank that tends
to have the expertise, and/or the motiva-
tion and/or the investment funds (or
access to investment funds via the World
Bank etc.) The central bank can also ensure
fair and equal access to all.
In developed countries, only minimal
involvement from the central bank is
required to provide final settlement and for
oversight – if the payment system is sys-
temically important. In these countries, the
central banks, arguably, should merely pro-
vide the liquidity and regulation. They cer-
tainly do not need to operate.
Julie Monaco: If you look at the US model,
on the other hand, you see the central
bank involvement from both a regulatory
and operational perspective. The central
bank provides a common ‘infrastructure’ for
the sharing of proposed standards and the
development of regulatory oversight, all of
which will ultimately influence market
practice. The Federal Reserve’s involvement
is balanced by the industry forum activities
of NACHA and The Clearing House/EPN.
This level of involvement and ‘partnership’
with the private sector in any major market
is reasonable and it contributes to the over-
all effectiveness of the ACH payment infra-
structure.
There are probably a lot of people in the
industry who would like to see a reduced
processing role for central banks in the
retail payments environment. I just do not
see that happening in the immediate
future. Yes – there are and will continue to
be competitive issues with central banks
that have processing roles. We will need to
deal with those issues. The industry should
focus on the partnership relationship we
enjoy with our central banks and work with
them on improving safety, soundness and
efficiency in the ACH market.
Hansjörg Nymphius: Central bank involve-
ment is needed for systemic oversight but
it is not necessary for driving competition.
The argument in favour of central bank par-
ticipation is that in emerging markets the
central bank probably is best suited to
organise, fund, set-up and operate an ACH-
infrastructure. Even so, while the reasons
given for this are valid, this effort would
need to proceed with caution. An initial
effect may be that a national/regional pri-
vately organised structure will never have
the chance to evolve and therefore the
central bank may always maintain a
monopoly. In addition, as discussed, this
also may not be the most cost-effective
solution.
The best way for central bank involvement
to work is for central banks to foster and
encourage the establishment of ACHs by
the market participants, and may even help
to fund this effort with start-up money.
Central banks should, however, avoid being
in the position of running the operations
while simultaneously holding the overseer
role.
Julie’s points about the US market holds
true owing to the sheer magnitude of that
domestic market, but they would not apply
in emerging markets or in the situation of
the 10 acceding countries in Europe.
Are regional differences in harmonisation
and regulation creating imbalances in the
global landscape?
Marilyn Spearing: Yes, definitely. There’s
no question that regulation is creating
imbalances. The recent EU regulation on
cross-border payments pricing automatically
created imbalances for in-euro banks against
the rest of the market. We have already
seen how this particular regulation has
changed bank behaviour vis-à-vis customer
and interbank pricing. The payments land-
scape in Europe has changed irrevocably due
to the cost pressures. We have many
providers of payments services throughout
Europe. Now the revenue line is very
severely impacted, that will force a
response on the cost line, which will
change how Europe interacts in payments
and that will start to force a consolidation. I
see that as an imbalance. You have an
enforced change.
Other examples might be the implications
of money laundering legislation in different
jurisdictions and the continued need to
meet central bank reporting requirements.
Under FATF, US banks are much more tight-
ly regulated. Then there is the question of
the application of Basel II in the US.
Hansjörg Nymphius: As mentioned, differ-
ences in implementation of regulations can
lead to certain imbalances. Nevertheless,
the imbalances are not so much, or at least
not only, between in-euro banks and non-
in banks but even more so within the com-
mon market. The point is that the price ➢
Q3 2004 – Dialogue
83Industry roundtable
pressure that this directive has instilled is
not an equal one, as the margin in this busi-
ness differs depending on the various
‘domestic’ markets. As a matter of fact, we
find that those countries that had been the
most efficient prior to the cross-border pricing
regulation are the most penalised by it.
Countries with high domestic payment fees
see less cost pressure and therefore banks
operating there are in a better position.
Regulators need to be more encouraging of
the common goal of a single EUR-market.
Julie Monaco: Historically, differences in reg-
ulation, law and market practice have result-
ed in differences in payment systems and
their use. As the industry creates a more
seamless and transparent global payment
infrastructure, it becomes easier for clients
to select less stringent payment systems to
move money. The implications of this sce-
nario are significant and can lead to unin-
tended consequences. Global harmonisation
and regulation are challenging tasks – but
the industry has little choice but to pursue
them.
Gerard Hartsink: Regional differences in reg-
ulation, notably in regard to money launder-
ing and security, for example, create extra
costs for the banking industry. Technology
providers have to supply different solutions
for ostensibly the same problem. We have to
remember, however, that 99% of all pay-
ments are domestic or regional payments.
Terry Quigley: As both Gerard and Marilyn
point out, there is a regulatory burden that
creates imbalances, though most of that
imbalance is a cost imbalance on the banks
that may or may not be passed on to the
end-customer.
As regards harmonisation, payments sys-
tems can create imbalances through differ-
ent operational rules across geographies.
The danger of this is that we introduce
another form of inter-system systemic risk.
Julie Monaco: It appears unanimous –
regional differences in harmonisation and
regulation are causing imbalances. I agree
with Gerard – as most payments are domes-
tic – the imbalance primarily impacts the
large, global payment providers. My concern
is that, as an industry, we are not doing
enough about the issue. An interesting first
step would be to identify the differences in
regulation among the major payment mar-
kets and assess the real and/or potential ➢
“ A recent opinion poll
commissioned by LogicaCMG
showed that nearly two thirds
of corporate customers
would pay additional
fees to banks for improved,
more detailed information
about their payments.
Terry Quigley, LogicaCMG
Q3 2004 – Dialogue
85Industry roundtable
impact to the way the payments infrastruc-
ture is being used.
Lázaro Campos: I’d argue that recent regula-
tions are also creating imbalances between
large and smaller players – the larger institu-
tions are better equipped to cope.
Are cross-system swaps and liq-
uidity bridges needed to deal
with imbalances when they
arise?
Julie Monaco: Just to put this into context,
the global payments infrastructure works
today. Every day the industry settles tril-
lions of dollars, euros, yen etc, without any
‘show-stopping’ imbalance issues. However,
the industry should not be complacent.
9/11 taught us about the need to maintain
liquidity bridges in worst-case scenarios. A
case can also be made about the increas-
ing liquidity requirements in the global
payment markets and the need to develop
swaps or liquidity bridges for a normal
operating environment.
The Federal Reserve Bank (of New York)
Payment Risk Committee published a Global
Liquidity Report in 2003 that addresses both
the challenges and opportunities in develop-
ing new liquidity services, which will add to
the solutions several central banks have
already established. That report has been
received with interest by the industry and
we are hopeful that additional initiatives
based on the recommendations in the
report will be developed this year and next.
Gerard Hartsink: The Payments Risk
Committee made clear in their Global
Payment Liquidity report that it is necessary
to create payment capacity in currency X
with collateral or payment capacity of the
central bank of currency Y. The central
banks (in the Committee on Payments and
Settlement Systems of the BIS) are review-
ing the consequences for creating these
options. It was made clear that it is not
only in the interest of large multi-region
banks and not only in case of a crisis.
Terry Quigley: These are very specific solu-
tions to very specific problems. Examples
might be liquidity swaps between Euro1
and Target and in-out swaps in CLS. They
are pragmatic solutions to very real prob-
lems and are fine provided they do not add
to systemic risks.
Marilyn Spearing: I think the market
evolves as it has to. The banks are moving
towards a market solution for Europe
through STEP2 for example. On cross-indus-
try swaps, there will be a similarly prag-
matic response. If you look at CLS and the
need to move cross-system, the in-out
swaps are an example of that.
Will the need for cross-system swaps and
liquidity bridges arise more generally?
Possibly, but, right now, the liquidity
requirements are being met within each
system. I don’t think there’s enough
demand for that yet.
Hansjörg Nymphius: Agreed – there has
indeed been a lot of discussion around
these aspects but so far the demands on
liquidity have been fulfilled in the individual
systems. Is there enough business need to
venture into this area today? Future market
developments will show whether enough
demand exists to establish these tools.
“ The revenue line is very severely impacted,
that will force a response on the cost line,
which will change how Europe interacts in
payments and that will start to force a
consolidation.
Marilyn H. Spearing, HSBC