Individual banks. Individual banks should take immediate steps to apply an appropriate credit control process to their FX settlement exposures. In many cases, this will require banks to improve their back office payments processing, correspondent banking arrangements, obligation netting capabilities and risk management controls so that they can properly measure and control their exposures and, where deemed necessary, reduce excessive exposures.
Industry groups. Reflecting the view that multi-currency services would best be provided by the private sector, the G-10 central banks encourage existing and prospective industry groups to develop and offer services that would contribute to the risk-reducing efforts of individual banks.
Central banks. Each G-10 central bank, in cooperation, where appropriate, with the relevant supervisory authorities, will choose the most effective steps to stimulate satisfactory private sector action over the next two years in its domestic market. This decision process should proceed at the national level over the next several months. Individual central banks will also make or seek to achieve certain key enhancements to national payments systems.
Collectively, the G-10 central banks will, through the CPSS, initiate several additional steps to support this strategy. For instance, the CPSS will cooperate with industry groups that seek to offer risk-reducing multi-currency services. In addition, the CPSS will begin to identify and to consider pursuing the resolution of legal or other relevant issues that may arise in the implementation of the strategy.
The CPSS will also closely monitor market-wide private sector progress towards reducing and managing risk over the next two years in order to determine the need for any additional central bank action. The CPSS plans to develop and follow several qualitative benchmarks, such as the number of market participants that properly measure their FX settlement exposures, that apply an appropriate credit control process to FX settlement exposures, that implement bilateral or multilateral obligation netting arrangements with their largest counterparties, and that use or participate in the development of sound private sector multi-currency settlement systems. The CPSS will also investigate the possibility of collecting market-wide statistics on actual FX settlement exposures to quantify the impact of these qualitative developments.
