'Chaps' payments system is at risk of meltdown, warns Bank
Wednesday 06 July 2011
The Bank of England warned yesterday that it would take action if necessary to strengthen Britain's payments system for big transactions.
Chris Salmon, the Bank's chief cashier and director of banking services, said the current system was unacceptably risky because it was open to meltdown if a lender failed. He said there were too many banks making big payments through the Clearing House Automated Payment System (Chaps) for securities transactions. Those institutions are taking out huge unsecured loans with the 18 Chaps correspondent banks during the day.
Mr Salmon said the danger was evident in 2008 when counter-party banks demanded more collateral from Lehman Brothers. In Britain, a troubled UK bank made payments through a much smaller bank. "These exposures could well have put the smaller bank in significant financial difficulty had the authorities not intervened in the failing bank," Mr Salmon said.
He added that the Bank "may consider recourse to more formal actions" if lenders did not volunteer for correspondent status.
Meanwhile, the Chancellor, George Osborne, formally ruled out offering MPs a veto on the appointment of a Governor of the Bank of England, but said he would listen to their concerns about the Bank's powers and accountability when it assumes the power to regulate the flow of credit in the economy in 2013.
He said he wanted the Bank to look at the big picture rather than "box ticking", and pointed to the failure of regulators to question the Royal Bank of Scotland's takeover of ABN Amro during the financial crisis as an example of how not to do it. "Hold on, in the middle of all this uncertainly, do we really want RBS to buy an enormous Dutch bank," he said. "We need common sense injected into the system, not just people saying, we're compliant with points one to 10."
Mr Osborne also told members of the Treasury Select Committee that he wished to appoint Robert Jenkins to the interim Financial Policy Committee, replacing Richard Lambert, the former director-general of the CBI, who resigned before the committee's first meeting last month.
Mr Jenkins is a former head of Foreign and Colonial Asset Management and will be one of four "external" members of the financial risk watchdog. Mr Osborne said he was keen for the external members to "challenge" Bank group-think and "governor-think". He conceded that Alastair Clark, an external member of the interim FPC, was unlikely to serve on the committee once it becomes permanent.
The committee voiced doubts about whether Mr Clark could be considered "external" given his 37 years at the Bank.
- 1 Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
- 2 How to turn off/stop 'seen by' on Facebook: Disable it to make your chats seem less passive aggressive
- 3 Company breaks open Apple Watch to discover what it says is 'planned obsolescence'
- 4 'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
- 5 Buckingham Palace guard who attacked passers-by in 'most most violent piece of CCTV footage' police officer had seen walks free
Top 20 misconceptions people believe are true
Sofyen Belamouadden murder: The inside story of a crime that horrified Britain
'We're not heroes, just tourists': Swedish police officers on holiday stop vicious assault on New York subway
Nepal earthquake: More than 1,100 killed across four countries and in Mount Everest avalanche
Australian student Tommy Connolly, 23, adopts his pregnant, homeless 17-year-old cousin to give her a chance at 'a better life'
The sickening truth about food banks that the Tories don't want you to know
Migrant boat disaster: Ukip candidate mocks victims in sickening Twitter post
Nigel Farage wants the BBC to stop making programmes like Doctor Who, Strictly Come Dancing, and Top Gear
Global warming: Scientists say temperatures could rise by 6C by 2100 and call for action ahead of UN meeting in Paris
General Election 2015: Britain would become a 'communist dictatorship' under Ed Miliband and Nicola Sturgeon, claims wife of Michael Gove
Rupert Murdoch berated Sun journalists for not doing enough to attack Ed Miliband and stop him winning the general election
iJobs Money & Business
£50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...
£18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...
£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...
£22000 - £24000 per annum: Recruitment Genius: This is an opportunity to join ...