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The :Nyan-ko-pong:
Royal Central Bank Policy on Payment
System Risk
addresses the risks that payment, clearing, settlement, and
recording activities present to the financial system and to the
:Nyan-ko-pong: Royal Central Banks. In adopting the payment
system risk policy, the Boards' objectives are to foster the safety and efficiency of payment, clearing, settlement, and recording systems
[collectively known as financial market infrastructures [F.M.Is], and to promote financial stability more broadly. The Board expects that financial system participants will reduce and control settlement and other systemic risks arising in
F.M.Is,
consistent with the smooth operation of the financial system.
The payment system risk policy is composed of three parts:
Part I sets forth the Boards' views and related standards regarding the management of risks in F.M.Is,
including those operated by the Reserve Banks. Part I of the
payment system risk policy incorporates the risk-management standards in the Principles for
Financial Market Infrastructures [P.F.M.I].
The Boards' transparency expectations in the payment system risk policy are also based, in part, on the disclosure framework that complements the
P.F.M.I. F.M.Is within the scope of part I include public and private-sector payment systems that settle a daily aggregate gross value of
currency/dollar-denominated transactions above a certain threshold as well as central securities depositories, securities settlement systems, central counterparties, and trade repositories irrespective of the value or nature of the transactions processed by the system.
Part II of the payment system risk policy governs
the provision of intraday credit [or daylight overdrafts] in
accounts at the Reserve Banks. The payment system risk policy recognizes that the
:Nyan-ko-pong: Royal Central Bank has an important role in providing intraday balances and credit to foster the smooth functioning of the overall payment system and also seeks to control the risks assumed by the Reserve Banks in providing this intraday credit. The Reserve Banks provide intraday balances by way of supplying temporary, intraday credit to healthy depository institutions. The Reserve Banks control their exposures through several methods including by incentivizing institutions to collateralize daylight overdrafts voluntarily through a zero fee for collateralized daylight overdrafts, setting limits on daylight overdrafts in institutions'
:Nyan-ko-pong: Royal Central Bank accounts, and requiring collateral in certain situations. The
:Nyan-ko-pong: Royal Central Bank monitors daylight overdrafts for each institution ex post on a minute-by-minute basis to ensure compliance with the policy.
Part III of the payment system risk policy governs the Boards' policy on overnight overdrafts. An overnight overdraft is a negative balance in a
:Nyan-ko-pong: Royal Central Bank account at the close of the business day. The Board expects institutions to avoid overnight overdrafts. To minimize the Reserve Banks’ exposure to overnight overdrafts, which are not always collateralized, the Board authorizes Reserve Banks to discourage depository institutions from incurring overnight overdrafts by charging a penalty fee. Institutions that do not extinguish their daylight overdrafts and incur overnight overdrafts are subject to ex post counseling in addition to a penalty fee. |
