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Strengthening Interbank Payment Systems. David Mazza, VP Payments Systems Risk Managment November 4, 2003. Citibank N.A. Citibank Payment Services. Largest processor of cash flows (payments) globally Global payment network spanning 90 countries $92 billion in liability balances

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Strengthening interbank payment systems

Strengthening Interbank Payment Systems

David Mazza, VP

Payments Systems Risk Managment

November 4, 2003

Citibank N.A.

Citibank payment services
Citibank Payment Services

  • Largest processor of cash flows (payments) globally

    • Global payment network spanning 90 countries

    • $92 billion in liability balances

    • Connection to over 270 payment systems globally

    • Process more than US $1 trillion in funds daily

  • Regular adviser on industry issues such as: settlement risk, receivables and payment processes, payments systems development

  • 100 years operating in Asia, Latin American and Europe

  • Operator of US dollar clearinghouses and FX clearinghouses in local markets

  • Maintains dedicated Payments Systems Risk Managment Group


Strengthening interbank payments
Strengthening Interbank Payments

  • Capabilities

  • Efficiency

  • Technology

  • Governance


  • Credit

  • Legal

  • Operational

  • Liquidity

Risk Management


Cash payment products
Cash (Payment) Products




Capabilities Parameters


Payable receivable products

Payables Suite


Mass Payments

Multibank Payments

Direct Debit Payments

Citibank Worldlink

Receivables Suite

Pick-up Services

Branch/Network Collection

Incoming Transfers

Automatic Tellers

Direct Debit

Receivables Management



Payable/Receivable Products


Cash management products
Cash Management Products

Liquidity Suite

  • Current Account

  • Sweep Balancing

  • Notional Pooling

  • Investments


Country capabilities parameters
Country Capabilities/Parameters

  • Electronic versus manual clearing

    • Manual, semi-automated, automated, RTGS

    • Cash clearing for securities/derivatives

  • LCY Cheque


  • Direct Debits

  • X-Border Electronic Funds Transfers

  • All banks are member of the clearing house vs. bilateral agreements

  • Timing of clearing process (D, D+1, D+2, etc)

  • Introduction of “hybrid” systems

    • Euro Access Frankfurt (EAF), Paris Net Settlement Systems, CHIPS

  • Allow third-party payments in interbank funds transfer systems


Business issues
Business Issues

  • Allow payers to pay directly into a Citibank account at our branches or via electronic transfer (local or from abroad) (Multibank Payments)

  • Regulations impacting file delivery contracts to allow files containing payments for various countries and currencies

  • Direct Debits

    • Clearinghouse requires an initial mandate for all direct debits

    • Limit set up by clearinghouses to process direct debits

    • Consumer and corporate direct debits

    • All banks in country or certain banks (bilateral agreements)

  • Can collections be made at automated tellers at branches or third-parties

    • Accepts cash, cheques, cards?

    • Requires information to be sent in advance?


Business issues1
Business Issues

  • Cheques/Collections

    • Same cut-off time for same-day deposit of cash/cheque pick up

    • Coverage and quality of armored car/courier companies

    • Cheque discounting (manual or automatic)

    • Ability for branches to print cheques

    • Validity period of cheques

  • Allow payers to visualize invoices to pay (finance) on the Web (CitiConnect); customers monitor receivables via Web/phone/email

  • Digital signature law

  • Notional pooling is available in foreign currency (USD, Euros)

  • Different legal entities allowed for sweep balancing

  • Tariffs/fees on LCY and FCY accounts


Swiftnet tm market infrastructures
SWIFTNetTM Market Infrastructures

  • SWIFTTM is now making its services available to market infrastructures (MIs) in the securities and cash payment industries

  • Advantages

    • The elimination of more than 100 proprietary machines and lines currently used by banking community

    • More efficient communications

      • Real-time, interactive exchange of messages

      • Automated exchange of files (bulk payments)

      • Particularly suited for central bank reporting and intra-institution reporting

      • Secure browser-based access to MIs Web servers

    • Improves straight-through-processing rates on both infrastructure and client sides

  • Can be used where not all participants are eligible for direct SWIFT participation (Closed User Groups)


Risk management
Risk Management

  • Citigroup endorses BIS Core Principles for Systemically Important Payment Systems

  • Multilateral net settlement systems

    • Losses should be shared based on bilateral credit (or transaction volume) vis-à-vis defaulting participant

    • Cap on losses to non-defaulting banks

  • Diversified selection of private-sector settlement banks for securities/ derivatives cash settlement

  • Wider adoption of CLS for FX payments

  • Development of USD/local currency (FX) clearinghouses

  • Settlement finality in payment and securities settlement

  • Structural limitations on legal liability to participants


Risk management1
Risk Management

  • Provision of central bank intraday (RTGS) liquidity

  • Introduction of payment optimization procedures

  • Elimination of unwind provisions

  • Largest participants should not be sole liquidity providers

  • Broader acceptance of foreign-currency denominated collateral for RTGS intraday liquidity (G-10 central banks)

  • Operational reliability/redundancy

  • Concentration of critical market infrastructure

  • Risk Management and Audit Functions in positions of authority

  • Regular external audits

  • Transparent and accountable governance structure

  • Involve participants in planning strategic objectives and plans for achieving them

    • Central Banks are adopting “product” offices