Proposal for a Directive on systemic risk in payment systems
| DOI | https://doi.org/10.1108/eb024902 |
| Date | 01 January 1997 |
| Pages | 29-36 |
| Published date | 01 January 1997 |
| Author | Marc Vereecken |
| Subject Matter | Accounting & finance |
Journal of Financial Regulation and Compliance Volume 5 Number 1
Proposal
for a
Directive on systemic risk
in
payment systems
Marc Vereecken
Received: 10th September, 1996
European Commission, 200, Rue de
la
Loi, 1049 Brussels, Belgium;
e-mail: marc.vereecken@dg15.cec.be
Marc Vereecken studied
at
the Facultés
Univer-
sitaires Notre Dame
de la
Paix
in
Namur,
Bel-
gium
and
graduated
in law
from
the
Catholic
University
of
Leuven (KUL), Belgium.
He
also
studied
at
the Georg-August Universität Göttin-
gen, Germany and
at
the School
for
Advanced
International Studies
of
the Johns Hopkins
Uni-
versity, Bologna
Center,
Italy,
where he was
an
assistant
in
International Trade Theory.
He
is
currently administrator
of
the European
Commission, Directorate General
XV, in the
unit dealing with payment systems. As such,
he
is
the
desk officer responsible
for
the Commis-
sion Proposal
for a
Directive
on
Systemic Risk
in Payment Systems.
ABSTRACT
The past decade, with
its
unprecedented surge
in financial activity and the
occurence
of
finan-
cial crises, has been one
of
increased
awareness
on
the
part
of
both regulatory authorities and
market participants of payment system's poten-
tial
for
propagating
and
amplifying financial
shocks, especially
in a
cross-border context.
This has led the European Commission to pro-
pose
a
Directive aiming
at
reducing systemic
risk in payment systems.
Systemic risk
is the
risk that
the
illiquidity
or failure
of one
participant
in a
payment
system,
and its
resulting inability
to
meet
its
obligations when due, will lead
to the
illiquid-
ity
or
failure
of
other participants
in
that
system,
with,
at
worst, knock-on effects
in the
financial markets
at
large.
This paper draws
the
background
and
describes
the
contents
of
the Commission's pro-
posal
to
reduce
systemic
risk.
INTRODUCTION
Economic transactions give rise
to
settlement
of obligations
to be
discharged through
the
transfer
of
money between
the
contracting
parties. Transferring money between financial
operators
is
what payment systems
are
designed
for. It has
been said, therefore, that
payment systems
are to
economic activity
what roads
are to
traffic: necessary
but
typi-
cally taken
for
granted unless accidents occur
or bottlenecks develop.
Until
a
decade ago, accidents were insignifi-
cant. Market participants
and
regulatory
authorities consequently
did not
attach
a
great
deal
of
attention
to
risk associated with pay-
ment systems.
The
last decade, however,
has
witnessed both
a
dramatic increase
in
financial
activity
and the
occurrence
of
financial crises,
such
as the
stock market crash
of
1987.
The
first has radically altered
the
scale
of
liquidity
risks
and
credit risks involved, whereas
the
latter
has
highlighted
the
payment system's
potential
for
propagating
and
amplifying
financial shocks. Both have spurred regulatory
authorities
to
examine the problem.
A major step
in
the increasing awareness has
been
the 1990
'Report
of the
Committee
on
Interbank Netting Schemes
of the
Central
Banks
of
the G-10 countries' under
the
chair-
manship
of
Mr Alexandre Lamfalussy.
It
high-
lighted
the
important systemic risks inherent
in
payment systems which operate
on the
basis
of
Journal
of
Financial Regulation
and Compliance, Vol.
5,
No.
1.
1997.
pp. 29-36
© Henry Stewart Publications,
1358-1988
Page 29
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