Jan. 26 (Bloomberg) -- The Bank of England said a number of financial institutions may join the U.K.’s large-value payment system as it intensifies moves to increase participation and help reduce risks to financial stability.
“Since we initiated this most recent round of discussions, one large indirect participant has formally committed to join CHAPS,” Chris Salmon, the central bank’s Executive Director for Banking Services, said in a speech in London on Jan. 24, published in London today. “A second is moving towards a similar formal decision, and the remaining banks that we have spoken to are considering their position.”
The financial crisis strained the payments system with record volumes, while the collapse of Lehman Brothers Holdings Inc. created confusion among traders about how to settle transactions. With only 18 firms using the U.K.’s Clearing House Automated Payment System, or CHAPS, to serve the sterling- denominated banking industry, more transactions must be settled indirectly in a so-called tiering problem. That raises the risk of intraday credit risk in case one of the banks involved in a payment arrangement runs into trouble.
“If all the banks we have talked to in this round of discussions were to join CHAPS in due course, payment flows made by indirect participants would account for less than 40 percent of the total, making substantial inroads into our tiering problem,” Salmon said.
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