On March 5 1998 the Reserve Bank of New Zealand implemented a real-time gross settlement (RTGS) system for high value interbank transactions (including those in the wholesale securities and foreign exchange markets). The value of such transactions settled through the new Zealand banking system now averages more than NZ$30 billion (US$17.5 billion) a day. Previously, these interbank obligations were netted and settled overnight through each bank's settlement account with the Reserve Bank.
The obvious risk in the net settlement system is the collapse of a bank during the day which has obligations after the day's trading. RTGS means that high-value transactions will now be settled, electronically, as they happen. Banks will consequently need greater daily access to liquid funds. To enable banks to access these funds the Reserve Bank will make available to them an intra-day securities repurchase facility.
Further changes are also being considered to the banking system:
- while retail payment systems are not affected by the introduction of RTGS, a more widely available electronic real-time cleared funds service is being developed by the member banks of the New Zealand Bankers' Association. The system is intended to give more certainty to lower value transactions (such as conveyancing settlements);
- the Reserve Bank has proposed a number of statutory amendments aimed at ensuring the validity of netting arrangements in an insolvency situation. These proposals provide that multilateral netting systems (operated by approved clearing houses) cannot be unwound by a liquidator on the insolvency of one of the participants and that an insolvency may be stipulated to have occurred at a particular time on a particular day, rather than at the beginning of a day.
The Reserve Bank hopes these proposals will become law by the end of the year.
James Aitken and Vaughan Spurdle