Embed Size (px)
Citation preview
Dipom Department of Banking Operations and Payments System 1
Brazilian Payment SystemBrazilian Payment SystemImplementation AspectsImplementation Aspects
Washington D.C., November 2003
Eduardo Fernandes – Central Bank of Eduardo Fernandes – Central Bank of BrazilBrazil
Mr. Eduardo FernandesHead of Department
World Bank
Brazilian Payment SystemImplementation Aspects
Mr. Eduardo Fernandes
Washington D.C., November 2003World Bank
Dipom Department of Banking Operations and Payments System 2
1) Background
2) Challenges
3) The Reform
4) The Process
Outline
Dipom Department of Banking Operations and Payments System 3
• Brazil’s efficient payment system is a legacy of Brazil’s efficient payment system is a legacy of the high inflation period that has reduced the high inflation period that has reduced settlement lags settlement lags
• Achievement of a sound financial system after Achievement of a sound financial system after
the restructuring of the banking industry (1995-the restructuring of the banking industry (1995-
1998) 1998)
• Internationalization of financial marketsInternationalization of financial markets
• Macroeconomic stabilityMacroeconomic stability
Background
Dipom Department of Banking Operations and Payments System 4
• Absence of a sound legal basis Absence of a sound legal basis
• No secured large-value funds transfer systemNo secured large-value funds transfer system
• Clearinghouses without proper risk control Clearinghouses without proper risk control
• No final settlement: possibility of unwinding No final settlement: possibility of unwinding
• Inadequate contingency arrangementsInadequate contingency arrangements
• Solving payment system problems without Solving payment system problems without
making noise to monetary policymaking noise to monetary policy
Challenges
Dipom Department of Banking Operations and Payments System 5
• High credit risk incurred by the CB, since High credit risk incurred by the CB, since
intraday credit (overdraft) was available without intraday credit (overdraft) was available without
collateral and unlimited collateral and unlimited
• Central Bank was not prepared to monitor Central Bank was not prepared to monitor
intraday balancesintraday balances
• Reduce systemic risk without efficiency lossReduce systemic risk without efficiency loss
• Shift credit risk from the CB to the marketShift credit risk from the CB to the market
• Avoid moral hazardAvoid moral hazard
Challenges
Dipom Department of Banking Operations and Payments System 6
• Establishment of a sound legal basis (Law 10,214)Establishment of a sound legal basis (Law 10,214)
• Recognition of multilateral nettingRecognition of multilateral netting
• Collateral pledged at clearinghouses is outside of Collateral pledged at clearinghouses is outside of the bankruptcy lawthe bankruptcy law
• Systemically important payment and settlement Systemically important payment and settlement systems become central counterpartiessystems become central counterparties
•CB has a mandate to designate them CB has a mandate to designate them
•Central counterparties must assure final settlementCentral counterparties must assure final settlement
•Adequate contingency arrangementsAdequate contingency arrangements
The Reform - I
Dipom Department of Banking Operations and Payments System 7
•Systems in the CB will operate under RTGS Systems in the CB will operate under RTGS modemode
Reserve and settlement accounts (STR)Reserve and settlement accounts (STR) Government securities book-entry system Government securities book-entry system
(SELIC)(SELIC)
•Systemically important clearings with Systemically important clearings with settlement accounts in CB settlement accounts in CB
•Bank reserve and clearing settlement accounts Bank reserve and clearing settlement accounts monitored in real-time monitored in real-time
•No overdrafts allowed No overdrafts allowed
•Accountholders must authorize all debits on Accountholders must authorize all debits on their reserve accountstheir reserve accounts
The Reform - II
Dipom Department of Banking Operations and Payments System 8
• Sources of intraday liquidity (2003) = US$100 billion Sources of intraday liquidity (2003) = US$100 billion •Interest free intraday credit in the CB through repo Interest free intraday credit in the CB through repo operations (US$75 billion)operations (US$75 billion)
•Reserve requirements intraday available (US$25 billion)Reserve requirements intraday available (US$25 billion)
• Demand of intraday reserveDemand of intraday reservess (2003) = US$14 billion (2003) = US$14 billion
• The STR system will be message drivenThe STR system will be message driven
• Adoption of the best international practicesAdoption of the best international practices
The Reform - III
Dipom Department of Banking Operations and Payments System 9
• Improvement of Improvement of clearinghouses clearinghouses risk control risk control devices through adopting:devices through adopting:
credit limitscredit limits
collateralscollaterals
DvP or PvP methodsDvP or PvP methods
Certainty of settlement (in case of systemically Certainty of settlement (in case of systemically important payment systems)important payment systems)
Data processing systems with robust Data processing systems with robust contingency planscontingency plans
The Reform - IV
Dipom Department of Banking Operations and Payments System 10
• Cost of reserves accounts fragilities, which amounted billions of dollars in 1994-1998’s banking crises
• In 1998: diagnosis of all risks involved in internal (CB) and external (market) systems
• Systemic risk involved in rejecting overdrafts of participants’ net positions from clearinghouses
• Each diagnosis was sent to the internal and external systems’ managers for their remarks
The Process - I
Dipom Department of Banking Operations and Payments System 11
• CB was invited to join CPSS’ Task Force on CB was invited to join CPSS’ Task Force on Payment System Principles and Practices, which Payment System Principles and Practices, which considered what principles should govern the considered what principles should govern the design and operation of payment systems in all design and operation of payment systems in all countries. countries.
• In 1999: presentation of the diagnosis to CB’s In 1999: presentation of the diagnosis to CB’s Board of DirectorsBoard of Directors
• The Board created a full time Working Group for The Board created a full time Working Group for restructuring Brazilian Payment Systemrestructuring Brazilian Payment System
The Process - II
Dipom Department of Banking Operations and Payments System 12
• Board of Directors announced the beginning of Brazilian Board of Directors announced the beginning of Brazilian payment system restructuringpayment system restructuring
• Other CB’s areas involved in the process: Accounting, IT, Other CB’s areas involved in the process: Accounting, IT, Open Market, Foreign Exchange, Legal Department, Open Market, Foreign Exchange, Legal Department, Banking, Supervision etc.Banking, Supervision etc.
• Partnership with financial system, clearinghouses and Partnership with financial system, clearinghouses and other participantsother participants
• Smooth transition without any contracts breakdownSmooth transition without any contracts breakdown
• Disclosure the new roles and major policiesDisclosure the new roles and major policies
• Approbation of the new legal basis (Law 10,214)Approbation of the new legal basis (Law 10,214)
The Process - III
Dipom Department of Banking Operations and Payments System 13
• May 2000, disclosure of a Technical Note on May 2000, disclosure of a Technical Note on Monetary PolicyMonetary Policy: : rebuilding the instrumentsrebuilding the instruments
• Announcement of the implementation schedule
• Setting up of new private clearinghouses and Setting up of new private clearinghouses and adaptation of the existing ones as a result of the adaptation of the existing ones as a result of the reform processreform process
• Test of the new technological environment (network, Test of the new technological environment (network, digital certificate, cryptography, queuing, optimization digital certificate, cryptography, queuing, optimization routine etc) to CB and market systemsroutine etc) to CB and market systems
The Process - IV
Dipom Department of Banking Operations and Payments System 14
• August 2000, public hearing of clearinghouses regulation
• Revision of the Technical Note on Monetary Policy: adding market feedback
• Disclosure of Technical Note on retail payments in order to take large values away from clearinghouse of checks and other documents
The Process - V
Dipom Department of Banking Operations and Payments System 15
• In order to monitor the network operating and to promote its continuous development, 3 technical working groups have been constituted in partnership with the market, dealing with network, messages and security
• CB is the responsible for their coordination
• Adoption of the best international practices
The Process - VI
Dipom Department of Banking Operations and Payments System 16
Involvement
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
jun/99 ago/99 out/99 dez/99 fev/00 abr/00 jun/00 ago/00 out/00 dez/00 fev/01 abr/01 jun/01 ago/01 out/01
Announcement
Technical Note-Monetary Policy
Legal Basis
Clearings Regulation-Public Hearing
Revision Technical Note-Monetary Policy
Technical Note-Compe
The Process - VII
Dipom Department of Banking Operations and Payments System 17
Further Information
[email protected]@bcb.gov.br
Dipom Department of Banking Operations and Payments System 18
Further Information
Thank you very much
