To this end, a number of initiatives are currently in progress to help ensure the continued efficiency of the payment and settlement system in the United States. Let me be a bit more specific about some of the planned improvements to the infrastructure of the financial system that we expect to be implemented in a very short time. The first is the CLS Bank project, the Continuous Linked Settlement Bank, which has been under discussion since 1995. The owners of the CLS Bank are in the process of building the Bank’s systems and getting supervisory approval to begin operations in the fall of next year. The purpose of the CLS Bank is to create a privately owned and operated facility for payment-versuspayment settlement of foreign exchange transactions. Today, many foreign exchange transactions carry principal risk - that is, the risk that only one of the two legs of the transaction will be executed. This risk exists because of differences in the operating hours of large-value payment systems around the globe. However, when transactions are settled through the CLS Bank, the two legs of the transaction will be executed simultaneously with finality, thereby eliminating principal risk from the transaction. A second initiative under way to improve the payment and settlement infrastructure has to do with CHIPS, the Clearing House Interbank Payments System. The New York Clearing House, which operates CHIPS, is planning to introduce fundamental changes to its processes for large-value interbank payments that will bring about intraday finality.
William C Dudley: Lessons of the crisis – the implications for regulatory reform Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the Partnership for New York City discussion, New York, 20 January 2010. *  *  *  It is a pleasure to have the opportunity to speak here today. I will focus on the important lessons of the recent crisis and how those lessons should inform the regulatory reform effort. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System. In my opinion, this crisis demonstrated that a systemic risk oversight framework is needed to foster financial stability. The financial system is simply too complex for siloed regulators to see the entire field of play, to prevent the movement of financial activity to areas where there are regulatory gaps, and, when there are difficulties, to communicate and coordinate all responses in a timely and effective manner. Effective systemic oversight requires two elements. First, the financial system needs to be evaluated in its entirety because, as we have seen, developments in one area can often have devastating consequences elsewhere. In particular, three broad areas of the financial system need to be continuously evaluated: large systemically important financial institutions, payments and settlement systems and the capital markets. The linkages between each must be understood and monitored on a real-time basis.