...Act 1999, which gives Norges Bank responsibility for authorisation and supervision of interbank systems, is important for the central bank's work in this area. The recommendations concerning payment systems from the Bank for International Settlements (BIS) also state that central banks should publicly disclose their role and their most important policies with respect to payment systems. In order to explicitly define our objectives for and roles in the payment system and in line with the recommendations from the BIS, Norges Bank makes public the basis for its oversight and supervision of the payment system.

Background

The payment system is an important part of a country's economic and financial infrastructure. Smoothly functioning payment systems make it possible to execute safe and timely payment transactions. The payment system handles different kinds of payment transactions--for the settlement of goods and services purchases, capital transfers, securities and foreign exchange trading, etc., and these transactions are made by private customers, banks, enterprises and government agencies. These transactions result in claims between the payers' and payees' banks, and these claims are settled through the banks' accounts in Norges Bank. Banks and the central bank are thus the core of the payment system. Banks' accounts in Norges Bank provide the link between the payment system and monetary policy since the central bank's key interest rates are the sight deposit and overnight lending rates in Norges Bank.

The payment system is also essential to financial stability. Banks' participation in the payment system exposes them to different kinds of settlement risk: credit risk is the risk of losses due to the failure of another bank to meet its obligations, while liquidity risk is the risk of losses due to the failure of a counterparty to meet obligations in part or in full at the agreed time. Legal risk arises when...

NOTE: All illustrations and photos have been removed from this article.



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