Reducing foreign exchange settlement risk

BIS Quarterly Review  |  September 2008  | 
01 September 2008

Much progress has been made in reducing settlement risk in foreign exchange markets, particularly through use of CLS Bank. However, the remaining exposures are sometimes still significantly large and not always well managed, creating the potential for systemic risk. To address this problem, it is particularly important that prudential regulators promote effective management of the risk by market participants.

JEL classification: G15, G18, G2, G21, G28, G32.

Includes boxes: How FX settlement risk arises and How CLS works - a simplified example