Assessing operational risk in CHAPS Sterling: a simulation approach

LARGE-VALUE PAYMENT SYSTEMS (LVPS) play a pivotal role in support of the financial markets and the economy more generally, as illustrated by the high overall value of payments processed by these systems. In the United Kingdom, for example, the CHAPS Sterling system handles on a typical day payments with an overall value of around £200 billion. Given this scale of activity, an LVPS that is inappropriately designed and/or poorly operated could expose users of the system to risk exposures potentially large enough to threaten their financial soundness and, in extreme cases, the stability of the system as a whole.