Settlement Risk in Large-Value Payments Systems

The tremendous growth of payments system use throughout the world has increased both the possibility of settlement failures and the potential impact of such failures. Two decades ago, the risks were relatively low. For example, the daily payment flow of foreign exchange transactions was roughly the same magnitude as the capital stock of a large U.S. bank. In 1996, however, the average daily turnover exceeded the combined capital of the top 100 U.S. banks. Regulators are especially concerned that payments systems might turn a local financial crisis into a global systemic crisis.