International Settlements: A New Source of Systemic Risk?

A third dynamic behind the increased concern about systemic risk in the payments system is the globalization of financial markets, which is tying economies and markets together in ways that introduce additional issues about the mechanisms by which traditional clearing (the notification and transfer of documents and orders to purchase and sell assets) and settlement (the transfer of final payment) take place. Finally, the fears about the supposed potential for systemic risk associated with clearing and settlement loss have been given greater credence by the lack of internal controls within major institutions , which have been exposed by the actions of rogue traders in Kidder, Bankers Trust, and Barings (see Edwards 1996). As the problems in these institutions have been unwound, greater appreciation has emerged of just how complex and segmented the institutional arrangements for clearing and settling transactions have become.