Effective Oversight of Payment and Settlement SystemsMaintaining financial plumbing

Published March 2010 10 lectures
Prof. Charles M. Kahn
Bailey Professor of Finance and Professor of Economics, University of Illinois, USA

Payment and settlement systems are the infrastructure by which financial institutions effect transactions. They range from retail systems through which consumers make purchases with credit cards or checks to national and international systems in which major financial institutions make large-value payments transactions. An important segment of payments and settlement arrangements... read moredeals with coupled transactions, in which one leg is a transfer of a financial instrument or of foreign exchange.

Policy makers have devoted increasing attention to payment and settlement systems in recent years due to significant changes in the technologies and infrastructures and because of the sheer magnitude and growth of payment activities.

This series of talks will provide a comprehensive overview of payment and settlement systems, with an emphasis on the regulatory issues they entail. The series begins with surveys of the institutional arrangements in wholesale payments, in retail payments and in clearing and settlement systems for financial instruments. In each case, the talks will address the case for and against regulatory intervention in the systems.

The series will then address some of the contentious issues in payments system regulation today: the role of the CLS Bank as a linchpin of the world’s payment arrangements and the regulatory challenges it poses, the concern over operational failure in large value systems and the role of regulation in ensuring adequate redundancy, the tensions arising between private and public payment systems and the potential for conflict of interest between governments as regulators and as operators of systems and finally the implications of the world financial crisis for payment and settlement systems, including techniques for dealing with counterparty risk and liquidity shortages.

The final section of the series introduces resources available for regulators in dealing with payment systems: the work of international agencies in establishing principles for best practice, the empirical results that have been obtained in recent years in the study of retail payment systems and the simulation techniques which are becoming an important technology for testing and refining wholesale systems.