Seminar on Payments Systems

1
Seminar on Payments Systems

• Martine BRACHET Head of Interbanking
  Relationships

 Managing Liquidity the Current Experience of
a French Banker 
2
SG Presentation

• SG
• A large international group located within 14 EU
  countries
• Through 21 banks
• 88000 employees in the world

3
Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

4
INTRODUCTION
To access to Euro Zone requires a long and
complex preparation within each bank of the
future European Union countries
5
Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

6
1. EURO LANDSCAPE REVIEW (1/4)

• 1st January 1999
• EURO single currency for all financial markets
• within euro zone
• 1st January 2002
• EURO single currency for all retail markets
• within euro zone

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1. EURO LANDSCAPE REVIEW (2/4)
European Banking Community self-regulation (1/2)

 European Credit Sector Associations 
Compensation Guidelines

• Scope
• Late customer payments settled after 459 pm CET
• Back value
• Applicable to transactions up to EUR 100 millions
  (transactions beyond EUR 100 millions
  negotiations between parties is possible)

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1. EURO LANDSCAPE REVIEW (3/4)
European Banking Community self-regulation (2/2)

 European Credit Sector Associations 
Compensation Guidelines

• Rules
• No automatic process the sending bank must
  obtain the authorisation from the receiving side
  before sending a payment
• Compensation paid by the sender to the receiver
  automatically apply
• EONIA 25 bps
• EUR 100 administrative per transaction

9
1. EURO LANDSCAPE REVIEW (4/4)
European Rules

• Eurosystem accepted mid 2003 to adapt its
  compensation rules in order to meet commercial
  banks needs
• These new rules will be fully operational as of
  1st August 2004
• Scope
• Partial or total TARGET failure
• No maximum amount
• Compensation paid by NCB to the sending bank
  based on EONIA flat an administrative fee to be
  shared between the sending and the receiving bank

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Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

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2. SGs EXPERIENCE (1/9)
Situation within EU before January 1st 1999 (1/4)

• High Value Domestic Payments
• About 20 heterogeneous Market infrastructures in
  15 national currencies
• First harmonisation following Lamfallussy rules

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2. SGs EXPERIENCE (2/9)
Situation within EU before January 1st 1999 (2/4)

• Low Value Domestic Payments
• In national currencies
• Local means of payments based on local standards,
  rules and procedures
• National ACH
• Example in France SIT, Paris Bankers Clearing
  House, GIE Cartes-Bancaires processed 50 millions
  of France to France transactions in accordance
  to CFONB(1) instructions

(1) French Banking Committee for Organisation
and Normalisation
13
2. SGs EXPERIENCE (3/9)
Situation within EU before January 1st 1999 (3/4)

• Cross-Border payments
• Processed through correspondent LORO accounts
• Settled in commercial money
• Based on bilateral contracts and pricing
• Less than 1 of domestic payments

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2. SGs EXPERIENCE (4/9)
Situation within EU before January 1st 1999 (4/4)

• Position of SG Group before January 1st 1999
• Direct or indirect member of local ACHs
• Direct or indirect member of local RTGSs / Net
  Settlement payment systems
• More than 150 Correspondent LORO Accounts within
  EU in 15 legacy currencies

everywhere it is needed (SG local branch or
subsidiary)
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2. SGs EXPERIENCE (5/9)
Current situation (1/5)

• High Value Domestic Payments
• As of January 1st 1999
• Net Settlement payment systems migrated in euro
  were more or less integrated to RTGS (eg. RTGS
  , CRI)
• The 15 EU Euro RTGS were interlinked to build
  TARGET

16
2. SGs EXPERIENCE (6/9)
Current situation (2/5)

• Low Value National Payments
• At this stage of SEPA (1) elaboration
• Same number of ACHs and other Retail National
  Payments Systems
• Same local means of payments

Each of them, within Euro Area, migrated in euro
as of January 1st 1999
(1) Single Euro Payment Area (ECB definition)
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2. SGs EXPERIENCE (7/9)
Current situation (3/5)

• Cross border payments in EU
• As of January 1st 1999, EU banks accessed to two
  new Payments systems
• Main part of legacy currency correspondent LORO
  accounts were closed early 1999
• The large European Banks centralised their
  intraday and overnight Euro Liquidity on a single
  Clearing Bank account

EBA EURO1 TARGET
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2. SGs EXPERIENCE (8/9)
Current situation (4/5)

• Current SG Group organisation
• SG Group Euro Treasury Management is fully
  centralised at Banque de France level
• SG Liquidity pool is mainly located in Paris
  (RGV) with still some additional local pots

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2. SGs EXPERIENCE (9/9)
Current situation (4/5)

• Current SG Group
• Direct TARGET participant of 9 Euro RTGSs
• Member of EURO1
• Direct participant of the main local ACHs and
  CSDs
• Very few correspondent LORO accounts remains
  where needed in addition to use of local ACH

Since 28 April 2003 SG is direct participant of
EBA STEP2 for pan-european full STP low value
credit transfers
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Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

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3. INTRADAY LIQUIDITY MANAGEMENT (1/3)

• Multiplication of payments systems in euro
  requires a complex flow management in issuing

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3. INTRADAY LIQUIDITY MANAGEMENT (2/3)

• EBA EURO1 is the only Pan-European private net
  multilateral payment system

BCE
End of day settlement
End of day settlement
End of day balances
central system
TARGET
TARGET
netting of opérations
ABE
EBA
EBA Clearer
EBA Clearer
Info on settlement
Info on settlement
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3. INTRADAY LIQUIDITY MANAGEMENT (3/3)

• Transactions are final in real time, in a full
  irrevocable mode
• Single Obligation Structure (SOS) EURO1
  Lamfallussy rules compliant
• Each EURO1 mechanism clearer benefits from a
  maximum 1.3 billion Euro
  debit cap
• Abolition of LORO credit caps allocated
• Each EURO1 clearer allocates credit caps to other
  EBA clearers within a maximum limit of 1.3
  billion Euro
• SOS imposes to cover one settlement member
  failure 1.3 billion Euro collateralised within
  ECB in a equal amount basis ( 14 million euro)

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Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

25
4. THE SG TARGET 2 EXPECTATIONS
France
BOF
SG
BNPP
TARGET 2 Centralised platform
Deutsch Bank
FORTIS
NBB
Belgium
Germany
BUBA
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4. THE SG TARGET 2 EXPECTATIONS (1/2)

• To complete consolidation of our flows management
  in Central Bank money and our euro liquidity
  management
• 1 SG CB NOSTRO account with BOF technical CB
  sub-accounts with other NCBs
• To simplify the back offices TARGET Connection
  management
• Only 1 central, multi-banks, multi-countries
  technical architecture and related banking
  software

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4. THE SG TARGET 2 EXPECTATIONS (2/2)

• To benefit from a central management of SG euro
  collateral pool
• 1 collateral pool for SG Group,for all the
  countries where SG Group is located
• To benefit from facilities in managing centrally
  reserves requirements
• To reduce our investments and maintenance costs
• 1 SG multi-country, multi-bank infrastructure
• To limit human resources to a global pool of
  expertise covering the whole SG Group through out
  EU countries where SG is located

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Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

29
5. MISTAKES TO AVOID WHEN ACCEDING TO EUROPEAN
UNION (1/4)

• An efficient management of Euro requires a
  consolidation of intraday flows and balances on a
  unique Euro Nostro account
• 1) To issue, as all the banks of the current EU
  did on September 1998, SSI (Standing Settlement
  Instructions), in order to inform every
  correspondent Bank about the exact references of
  the account on which all of the flows in euro are
  expected

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5. MISTAKES TO AVOID WHEN ACCEDING TO EUROPEAN
UNION (2/4)

• 2) To institute as soon as possible a procedure
  of closing down all the NOSTRI accounts, in order
  to avoid
• Mistakes from correspondent bank in respecting
  the SSIs
• Unmatched transactions (expectation of flows on
  the Nostro A, and flows really posted on the
  Nostro B)
• Liquidity loss

31
5. MISTAKES TO AVOID WHEN ACCEDING TO EUROPEAN
UNION (3/4)
Current situation Access to euro via national
correspondent banking model
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5. MISTAKES TO AVOID WHEN ACCEDING TO EUROPEAN
UNION (4/4)
The objective to achieve at the latest at the
entry day into EU
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Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

34
CONCLUSION (1/3)

• The further acceding countries will firstly act
  as out countries within EU
• No change for local retail payments that will
  mainly remain in legacy currency
• Will have to deal with two RTGSs connections
• One in euro TARGET2 (for retail and bank to bank
  payments)
• One in their legacy currency
• Will have the opportunity to join EURO1, STEP1
  and STEP2 as full EBA members or as indirect
  participant

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CONCLUSION (2/3)
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CONCLUSION (3/3)

• Further acceding countries banks should already
  
• Prepare closing a large majority of their euro
  correspondent LORO accounts within in
  countries
• Centralise their euro liquidity and treasury
  management
• Buy euro liquidity from the in countries banks

37
Summary

• Introduction
• Euro Landscape Review
• SGs Experience
• Intraday Liquidity Management
• The SG Target 2 Expectations
• Mistakes to avoid when acceding to European Union
• Conclusion
• Question and answers

38

• Questions and answers

39
Seminar on Payments Systems

• Martine BRACHET Head of Interbanking
  Relationships

 Managing Liquidity the Current Experience of
a French Banker