Summary and Final Considerations

Until recently, most of the principal large-value payment systems operated in a manner that allowed the creation of large volumes of intraday credit amongst their members: payments were settled net between the sending and the receiving banks at the end of the day. In some cases, banks had little incentive to control/price the consequent credit risk, as the exposures were typically so large that the central bank would have felt obliged to intervene in the event of settlement default in order to prevent clearing banks failures from having systemic consequences. In the late 1980s, operational arrangements and practices in net payment systems underwent some extensive revisions which resulted not only in the implementation of risk-reduction policies such as net bilateral credit limits, net debit caps and loss-sharing rules, but also in the recognition of the importance of an immediate and irrevocable availability of funds to the receiving bank (finality of payment). The principle of the irrevocability of settlement in all large-value fund transfer systems and technological improvements in the way payment orders could be processed supported the idea of transforming payment arrangements entirely by changing the settlement method itself: fund transfer instructions should be settled on a payment-by-payment basis (gross settlement) as soon as they are posted to the system (real-time settlement).