Report on netting schemes (Angell Report)

February 1989

Foreword

In mid-1988 the Group of Experts on Payment Systems from the G-10 central banks (a predecessor of the Committee on Payments and Market Infrastructures), meeting in Basle, initiated a detailed study of various kinds of internationally related financial netting arrangements. A number of such arrangements are operating in various countries, handling obligations and payments arising under foreign exchange and other contracts, and more netting systems are being proposed or developed. The Group was interested to see how far existing or future netting arrangements might contribute to the efficiency of the international financial markets and payment systems, and what effect they might have on counterparty credit and liquidity risks.

This report represents the outcome of that study. It identifies a wide range of issues that may be raised by different forms and structures for netting arrangements, and that therefore need to be considered carefully by central banks and banking supervisors, and also by banks and other institutions participating in those arrangements. For their part, central banks continue to review these complex and difficult issues. The report, that preceded the "Lamfalussy Report" of 1990, was made available to banks, in the hope that they would find it of use in assessing their current operations and associated risks, and in contemplating participation in any future arrangements. Suppliers of telecommunication networks, and other vendors of netting systems, may also find the report of interest.

The report should be viewed solely as the product of study by the Group of Experts on Payment Systems and does not necessarily represent the views of either the central banks of the G-10 countries or the BIS. The members of a Working Party primarily responsible for drafting the report were: Mr P Allsopp (Bank of England); Mr P Fisher (Federal Reserve Bank of New York); Mr I Kuroda (Bank of Japan); Mr J Marquardt (Board of Governors of the Federal Reserve System); Mr W Michalik (Deutsche Bundesbank); Mr Y Oritani (Bank of Japan); and Dr C Vital (Swiss National Bank). Able assistance was provided by Mr K Kearney (Bank for International Settlements).

As there is continued interest in the earlier work of central banks relating to payment systems, in particular in connection with the current efforts to establish core principles for systemically important payment systems, the CPSS Secretariat is now making this report available on the BIS website.