Risks in Large Value Payment Systems

Payment system is an integral part of the entire banking system in every country. Payment systems in centrally-planned economies differ greatly from market-driven economies. Almost all market-driveneconomies depend heavily on latest technology for efficient functioning of payment systems. The same technology is also a source of risks, which are found only in technology oriented payment systems, such as systemic risk. The discussion on LVPS assumes important dimensions due to its direct implications on financial market. The efficient functioning of payment system is necessary for the efficient functioning of the financial sector. Strong and sound payment system is required not only for long term stability of financial system but also for trouble free day-to-day working of settlements. The transaction on the financial market, generate risks for counterparties who undertake them, for the bankers, for the other intermediaries and for the central bank. The risks are greater in the case of LVPS. The disturbances in these settlements can have wider repercussions for the financial system and the economy as a whole. Due to application of technology the time taken for settling the transactions has been drastically reduced increasing to large volumes exposures. The structure of payment system determines the type of risk, who bears the risks and the vulnerability of the system.