IT is also a necessary condition for the methods used to calculate financial risks in portfolios of securities or credits. The new Basel Committee rules on capital adequacy in banks, to take an example, are entirely dependent on such calculations. Network effects in the payment system The banking sector in Sweden is, as we know, strongly concentrated. This can raise questions in certain contexts as to how well competition functions. However, the concentration has also enabled, as I pointed out earlier, a more rapid exploitation of network effects and economies of scale connected with IT developments. Let me go into this in more depth, hopefully without becoming too abstract. The development of payment services is governed, just as on other markets, by supply and demand. Supply is affected by costs and technology, while demand is affected by factors such as price, acceptance, comfort and accessibility. Advantages of scale within the production of payment services arise as these services are often connected with high fixed costs and relatively low flexible costs. Building up a new computer system is expensive, but every transaction that passes through the system costs less. The economies of scale effects provide incentive for various types of co-operation and joint solutions, where producers join forces to utilise the economies of scale and spread costs over greater volumes. There are also advantages of scale on the demand side, the in the form of positive network effects. Positive network effects mean quite simply that a particular system becomes more usable the more people who use it.
These risks can easily be passed on through the global financial system, because of the different time zones, and can bring about serious disturbances. There has therefore been a global collaboration on a project called CLS, Continuous Linked Settlement, for some years now. All of the dominant foreign exchange banks in the world are taking part in this project, with the aim that a joint system will settle all of the members’ foreign exchange transactions. This will enable payment in one currency to be made directly against payment in another, which will entail the credit risk that arose earlier disappearing. IT in a broad sense has, of course, also been necessary for the security of the systems for large payments that central banks around the world develop or oversee, where the trend in recent years has been towards real time gross settlement. Our own RIX system is an RTGS system, as is the TARGET system used by the ECB. I would be happy to discuss this, but it would involve a deviation from my subject here. Conclusion In conclusion, I would like to make two reflections. Firstly, it is of course the case that IT, while increasing both the efficiency and security of the financial system in general and the payment system in particular, also increases risks of a purely operational nature. Operational risks were strongly in focus prior to the new millennium, particularly in the financial sector, and extensive preparations were made to guard against them.