Federal Reserve ends quantitative easing (QE3) bond-buying program

Finally! QE3 is over! I can almost hear the booming voice, “Step away from the money-printing machine!” Now  that QE3 is done, what’s next? Is this a sign of better things to come? Look at all of the distractions we’ve had in the last couple of days…  -LW


 

Federal Reserve Chairman Janet L. Yellen. (AFP Photo/Darren McCollester)

Federal Reserve Chairman Janet L. Yellen. (AFP Photo/Darren McCollester)The Federal Reserve has officially announced an end to its quantitative easing bond-buying program, but economists are split over whether the central bank’s decision will help or hinder post-recession recovery.

As expected, the Fed said Wednesday afternoon that it’s third and most recent round of quantitative easing, QE3, would come to an end.

“The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month,” reads part of a statement released by the Fed on Wednesday. “The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.”

The confirmation surprised few since the Fed was largely reported ahead of Wednesday’s decision to be considering making such an announcement. As far as what the result will be, however, is up for debate as economists weigh potential outcomes ranging from outright optimism to doom and gloom.

Combined, the three rounds of QE undertaken by the Fed since 2008 have generated trillions of dollars for the American economy through a process in which the central bank has perpetually pumped money into long-term government bonds and bonds backed by home mortgages. But David Wessel, the director of the Hutchins Center at the Brookings Institution, told NPR recently that the three-and-a-half-trillion dollars’ worth of bonds purchased during that six-year span has been “far more than anybody inside or outside the Fed expected when this all began.”

AFP Photo

AFP Photo

Indeed, the Fed has twice announced an end to its bond purchasing programs, only to soon after start again when it was realized that the desired effect failed to be achieved. Six years later, though, the end to QE3 might once and for all be the final nail in the program’s coffin.

In 2009, Ben Bernanke, then the chairman of the Fed, said that quantitative easing would only end “when credit markets and the economy have begun to recover,” at which point the central bank would resume business as usual.

“As the size of the balance sheet and the quantity of excess reserves in the system decline, the Federal Reserve will be able to return to its traditional means of making monetary policy–namely, by setting a target for the federal funds rate,” he said. “In considering whether to create or expand its programs, the Federal Reserve will carefully weigh the implications for the exit strategy. And we will take all necessary actions to ensure that the unwinding of our programs is accomplished smoothly and in a timely way, consistent with meeting our obligation to foster full employment and price stability.”

Today, the American economy is statistically sounder than six years ago: not only have three rounds of QE allowed faltering banks to get boost after boost from the government, but, partially as a result, jobless claims are down drastically from post-recession figures.

Nour Eldeen Al-Hammoury (Image from nourhammoury.com)

Nour Eldeen Al-Hammoury (Image from nourhammoury.com)

Nevertheless, optimism isn’t universal when it comes to what ending QE3 means for the world economy.

“Well there are some improvements, but we can’t say that it is recovering as everyone hoped,” Nour Eldeen Al-Hammoury, a chief market strategist at ADS securities in Abu Dhabi, told Euro News recently. “GDP is growing based on the inventories, which doesn’t mean that sales are increasing. The slack in the economy remains and so far there is no clear strategy on how this slack will be resolved. Moreover, the slowing down in Europe and Asia will be something to consider as the US economy is unlikely to grow on its own.”

According to Al-Hammoury, markets the world over may suffer as a result of ending QE3. “It is not the Middle East markets only, it is global markets and especially the emerging markets,” he said. “Let’s say, for example, Dubai — Dubai stock market was one of the best performers in the world. However, we will see some more declines at the end of the year. These markets are again sensitive to any events. However, these Middle East markets may benefit again from what’s happening in Europe. I mean the outflow that is happening in Europe and also don’t forget that this region has also opened its doors to foreign investors so with the Fed ending QE we might see some declines again, and if the global slowdown continues, global markets, including the Middle East, may continue with the current downside correction.”

Even in the west, that pessimism is present: Pedro Nicolaci da Costa wrote for The Wall Street Journal this week that the Fed may deploy another round of quantitative easing if the decision to end the third series proved to be unsuccessful, which, according to his report, may be the case.

“Many of the studies of large-scale asset purchases, known as quantitative easing or QE, agree they worked very well to prevent deflation and stabilize the financial system during the 2008 crisis, but disagree about how effective the programs have been in boosting growth since then,” da Costa wrote.

Although Bernanke has attributed QE with cutting unemployment, da Costa wrote, Fed researchers and academic economists have for years studied the practice and are split with regards to how successful the rounds have been, and what the eventual outcome will be when all is said and done.

“I do think they’re overly optimistic,” Barbara J. Cummings of the Boston Private Bank & Trust Company told CNBC this week. “The market and the Fed are definitely saying two different things. And the market is right. It usually is.”

To some, the outcome is even drearier. “Without another dose of stimulus, the US will likely slide into recession,” Worth Wray, chief strategist at Mauldin Economics, predicted to Equities earlier this month.
Source.

Rampant financial crime in City of London eroding public trust

Wow! The corrupt banking stories are starting to focus on the City of London–the heart of the central banking cartel. We must be getting close to the end of this chapter…  -LW


Published time: October 28, 2014 19:58
Edited time: October 29, 2014 00:05

The exterior of the headquarters of the Bank of England in London. (AFP Photo)

The exterior of the headquarters of the Bank of England in London. (AFP Photo)

In her first public address since adopting the position of BoE Deputy Governor, Nemet Minouche Shafik denounced the actions of UK traders in foreign exchange, currencies and bonds markets, warning financial misconduct in these sectors goes well beyond a few rogue financiers.A top Bank of England (BoE) official warns widespread financial crime in the City of London is eroding public trust. The BoE’s criticism surfaced as it launched a review to tackle market manipulation.

Referencing LIBOR riggers’ behavior as unacceptable, she suggested fines for such fraudulent activity were inadequate and signified “salt rubbed into the wounds to public confidence in financial markets.”

LIBOR (London Interbank Offered Rate) currently determines the cost of up to $350 trillion worth of global financial products. While the 21st century has been littered with financial scandals, Libor rigging by leading global banks has been dubbed the most flagrant in modern history.

Approximately £4 billion worth of fines have been issued for the manipulation of core benchmark rates to date, and the City is expecting further fines for the rigging of currency markets to be publicly announced in November.

(AFP Photo/DOMINIQUE FAGET)

(AFP Photo/DOMINIQUE FAGET)

(AFP Photo/DOMINIQUE FAGET)

Speaking at the London School of Economics (LSE) on Monday, Shafik warned Britain’s financial system is rigged and characterized by disproportionate rewards.

“When people read of malpractice in financial markets, of trading profits being claimed through manipulation, collusion or dishonesty, they naturally wonder if they are one of the people who have been wronged,” she said.

Joel Benjamin, a leading researcher and campaigner at UK ethical finance group Move Your Money is investigating the impact of LIBOR rigging on UK citizens and stakeholders. Benjamin warns such rate manipulation is anything but a victimless crime, and those who have suffered most in its wake remain largely uncompensated.

“The real victims of LIBOR are pension funds, SME’s fraudulently mis-sold interest rate swaps, public authorities with cash investments in the banks, and LOBO loans and PFI contracts where interest repayments increased as LIBOR was rigged lower by the banks,” he told RT on Tuesday.

‘Fix the barrel – to get rid of the bad apples’

Shafik’s address at LSE accompanied the launch of the BOE’s long-awaited review of fixed income, foreign exchange and commodities markets, collectively termed FICC. The results of the Bank’s review, first announced by Chancellor George Osborne in June, are expected to surface following the general election in May 2015.

Commenting on the implications of rate rigging, Osborne warned on Monday that financial integrity is a vital prerequisite for a thriving British economy.

But Benjamin argues Osborne has done little to help small businesses and local authorities that have suffered as a result of such financial crimes.

Britain's Chancellor of the Exchequor, George Osborne. (AFP Photo)

Britain’s Chancellor of the Exchequor, George Osborne. (AFP Photo)

Britain’s Chancellor of the Exchequor, George Osborne. (AFP Photo)

“Instead of investigating victims of LIBOR fraud and pursuing compensation, George Osborne has handed LIBOR fines to armed forces charities. LIBOR fines should be going to SMEs defrauded by the banks and to fund public services ravaged by austerity cuts borne of the bank bailouts,” he said.

Reflecting on questionable aspects of Britain’s financial sector, the BoE’s deputy governor said the tired argument that financial misconduct relates to the behavior of a “few bad apples” is “no longer credible.” Shafik suggested UK financial regulation lacks efficacy and robustness, and a regulatory overhaul is needed to“fix the barrel and to get rid of the bad apples.”

Responding to the BoE Deputy Governor’s comments, Benjamin told RT the Bank must drive and oversee a dramatic shift in Britain’s regulatory architecture.

“If the Bank of England are serious about changing the culture of British banking, that means ensuring bankers take responsibility for their actions, and that regulators hold criminal behavior to account,” he said.

Benjamin warns that “deferred prosecution agreements” currently deployed under UK law are particularly problematic. Such legislation facilitates banks in avoiding criminal penalties and keeping damning details of fraudulent activity from public knowledge, he argues.

LIBOR rigging is currently illegal under UK law. And the manipulation of currency and gold markets are set to be classified as criminal offences by the end of 2014.

But Benjamin warns political motivation to prosecute bankers responsible for rate rigging remains paltry at best.

“LIBOR was a clear conspiracy to defraud, and should be treated as such under UK law. But there is no political will to prosecute the bankers who provide over 50 percent of party political donations,” he said.

Benjamin argues that the City of London is characterized by a culture of impunity that reinforces the concept “that crime in the City by elites is tolerable and understandable, while crime on the streets is unacceptable – irrespective of personal circumstances and need.”

Source.

Some Results from This Month’s Financial War Games

Earlier this month, “Financial War Games” were held in the United States and European Union. Here, the EU results as analyzed, and it seems they were anything but legit. -LW


Another Unbelievable Stress-Free Test; Whitewash Math and Deferred Tax Assets

In an effort to fool the public into believing the latest round of bank stress tests were actually designed to find stress, the ECB found 25 scapegoats, with the biggest losers in Italy and Greece.

Interested parties may wish to slog through the full 178 page Stress Test Report.

Capital Shortfalls


Non-Performing Loans

Here’s a chart from PDF page 75 (report page 67) with thanks toZeroHedge.

There is €879 billion in nonperforming loans but the report concludes bank assets are only €48 billion overstated. Apparently we are to believe there are adequate loan loss provisions for rest.

Reuters reports ECB Fails 25 Banks in Health Check but Problems Largely Solved.

 Roughly one in five of the euro zone’s top lenders failed landmark health checks at the end of last year but most have since repaired their finances, the European Central Bank said on Sunday. Italy faces the biggest challenge with nine of its banks falling short and two still needing to raise funds.

“This seems as if it has been pretty unstressful,” said Karl Whelan, an economist with University College Dublin.

“The real issue is the size of the capital shortfall and that is very, very small. I don’t feel a whole lot more reassured about the health of the banking system today than last week.”

€48 Billion Shortfall

The Financial Times reports ECB Says Banks Overvalued Assets by €48bn.

 The European Central Bank’s dissection of the books of the eurozone’s biggest banks has found lenders overvalued their assets by €48bn.

The results of the ECB’s examination of balance sheets worth €22tn, known as the Asset Quality Review, will require the 130 lenders who took part in the exercise to adjust the value of their assets in their accounts or prudential requirements.

A quarter of the reduction, €12bn, will fall on Italian lenders, an amount just short of 1 per cent of their risk-weighted assets. Greek banks will have to lower their asset values by €7.6bn, or almost 4 per cent of their risk-weighted assets.

Philippe Legrain, an economist and former adviser to then European Commission president José Manuel Barroso, described the tests as a “whitewash”.

“The ECB singles out less important banks in less important countries and gives the German banks a clear bill of health,” Mr Legrain said.

German lenders will have to lower the value of their assets by €6.7bn and their French counterparts by €5.6bn.

The AQR reviewed 800 portfolios, which together made up more than 57 per cent of banks’ risk-weighted assets. The ECB said they examined 119,000 borrowers and valued 170,000 items of collateral. Supervisors also built 765 models to challenge banks’ estimates of their provisions.

The 130 banks account for 81.6 per cent of all eurozone assets.

Whitewash Math

Non-performing loans total €879 billion out of a total balance sheet of about €22 trillion. That’s approximately 4% of loans.

Of the 130 banks, 25 failed. That seems like a lot. However, the total amount of under-capitalization is a mere €48 billion. That is an overall asset overvaluation of a mere 0.218%.

Anyone seriously believe that €48 billion is credible with France, Italy, and Spain in or near recession (and Germany heading there)? I don’t. It’s not even a generous rounding error.

Have Spanish banks written off 100% of their bad property loans? What about sovereign bonds assumed to be 100 percent risk-free? Didn’t Greece prove bonds payments are not sacrosanct?

What happens when the eurozone splinters? Here’s the answer: German banks are going to take a massive hit.

Deferred Tax Assets 

Huky Guru has some interesting figures about Spanish banks.

About a year ago, Guru reported that a Reclassification of DTAs(Deferred Tax Assets) provided an extra €30 billion capital for Spanish banks.

Guru brought up the subject again today in Putting the Stress Tests in Context.

Paraphrasing Guru … Accounting magic and government decree has allowed banks to compute an extra €30 billion in capital for Spanish banks via DTAs. Without that €30 billion, the average Tier 1 capital for Spanish banks would have fallen from 9.1% to 7.1%. More than one bank would have failed the test.

Spanish Banks Plow Into Spanish Sovereign Bonds

Guru notes “Spanish banks hold Close to €231.519 billion in Spanish bonds, almost twice around the capital of the Spanish banking system.

At least six Spanish banks have massive leverage in bonds. Catalunya Banc and NCG are particularly exposed.

Conclusion

The entire exercise was another stress-free farce.

Mike “Mish” Shedlock

http://globaleconomicanalysis.blogspot.com

Source.

JP MORGAN GOLD INVENTORIES: Fall A Stunning 33% In One Day (10 tonnes)

Holy Cow! 321,500 oz of gold has a market value of roughly $400 million… Who on earth withdrew that much gold?  


 — Posted Friday, 24 October 2014 | 7 CommentsBy Steve St. Angelo, SRSrocco Report

As the increasingly volatile stock markets bounced back higher today,  JP Morgan experienced one of the largest withdrawals of gold from its inventories this year.  In just one day, a stunning 321,500 oz of gold (10 metric tons) were removed from JP Morgan’s Eligible inventories.

COMEX GOLD 102314

Total gold inventories at JP Morgan fell 33% from 983,693 oz yesterday, to 662,193 today.  Of course, this had to come from JP Morgan’s Eligible inventories, because there are only 176,436 oz of gold in their Registered inventories.

You will notice, that the amount is exactly 321,500 oz (10 metric tons) to the TEE… and as Harvey Organ and Bill Holter have commented, it’s extremely rare for a gold bar or series of gold bars to equal exactly 10 metric tons.  Instead, we should see a fraction of an amount shown as an example in the MANFRA, TORDELLA & BROOKES gold transfer of 29,752.630 oz from the Registered category to Eligible.

Looks like this transfer was LEGIT as we can see the fraction of 0.630 oz shown in the transfer.  I gather JP MORGAN feels that it doesn’t need to be bothered with accounting for these silly fractions, when they have to deal with much larger numbers such as the $70 trillion of Derivatives on their balance sheet.

It will be interesting to see if this 10 metric ton gold withdrawal from JP Morgan becomes an entry in one of the other Bank’s vaults in the next day or so.  Or maybe, it’s on its way to CHINA or INDIA.  Either way… just another interesting data point taking place as the broader stock markets continue to CONVULSE up and down like someone suffering from a HEART-ATTACK.

Source.

 

China Launches New World Bank Rival

This sounds like the BRICS Development Bank, but BRICS isn’t even mentioned… Regardless, here is yet another sign that the world of banks and banking are rapidly changing. Based on what you know about the banking cartel that seems to run the entire world, why would US Secretary of State John Kerry ask Australian Prime Minister Tony Abbott to “steer clear” of this new bank? -LW


China and India are backing a 21 country $100 billion Asian Infrastructure Investment Bank (AIIB) to challenge to the World Bank and Asian Development Bank.

Memorandum of understanding were signed with 21 Asian countries in Beijing Friday. Australia, Indonesia and South Korea were absent following hidden pressure from Washington.

The development bank was proposed a year ago by Chinese President Xi Jinping, and is to offer financing for infrastructure projects in underdeveloped Asian countries.

Headquartered in Beijing, former chairman of the China International Capital Corp investment bank Jim Liqun, is expected to take a leading role.

The bank will initially be capitalized with $50 billion, most of it contributed by China. The country is planning to increase authorized capital to $100 billion. With that amount the AIIB would be two-thirds the size of the $175 billion Asian Development Bank.

India will be the second largest bank shareholder though Kuwait, Qatar, Mongolia, Kazakhstan, Pakistan, Nepal, Oman, and all the countries of the Association of Southeast Asia, except Indonesia are involved.

Australia, Indonesia and South Korea did not participate following US claims of ‘concerns’ about a rival to Western-dominated multilateral lenders.

Japan, China’s main rival in Asia, which dominates the Asian Development Bank along with the United States, did not attend but had not been expected to do so.

Indonesia refused to participate claiming it needs time to discuss China’s proposal.

The Australian Financial Review said US Secretary of State John Kerry had personally asked Australian Prime Minister Tony Abbott to “steer clear” from joining AIIB.

“Australia has been under pressure from the US for some time to not become a founding member of the bank and it is understood Mr. Kerry put the case directly to the prime minister when the pair met in Jakarta on Monday following the inauguration of Indonesian President Joko Widodo,” the paper said.

South Korea, one of America’s closest allies in Asia, is alse prevaricating. Its finance ministry said it spoke with China to request more time to consider details such as the AIIB’s governance and operational principles.

US officials have said they do not want to support an initiative Washington thinks is unlikely to promote good environmental, procurement and human rights standards in the way the World Bank and ADB are required to do.

But Chinese officials are convinced the American opposition is an attempt to contain the global rise of China and its ambition to remain the dominant power in Asia.

“You could think of this as a basketball game in which the US wants to set the duration of the game, the size of the court, the height of the basket and everything else to suit itself,” Wei Jianguo, a former Chinese commerce minister, told the Financial Times.

Matthew Goodman, scholar at the Center for Strategic and International Studies in Washington DC believes the initiatives of a BRICS Bank and AIIB “represent the first serious institutional challenge to the global economic order.”

Chinese Finance Minister Lou Jiwei said the AIIB will set high standards, safeguard policies and improve on bureaucratic, unrealistic and irrelevant policies, according to the Xinhua news agency.

 

Source.

 

Forex-Rigging Fines Could Hit $41 Billion Globally

Banks could have to pay as much as $41 billion globally to settle probes into allegations traders rigged benchmarks in the currency markets,Citigroup Inc. (C) said today.

Deutsche Bank AG (DBK) is seen as probably the “most impacted” with a fine of as much as 5.1 billion euros ($6.5 billion), Citigroup analysts led by Kinner Lakhani calculated, estimating the Frankfurt-based bank’s settlements could reach 10 percent of its tangible book value, or its assets’ worth.

Using similar calculations, Barclays Plc (BARC) could face as much as 3 billion pounds ($4.8 billion) in fines and UBS AG (UBSN) penalties of 4.3 billion Swiss francs ($4.6 billion), they wrote in a note first sent to clients on Oct. 3.

Authorities around the world are scrutinizing allegations that dealers traded ahead of their clients and colluded to rig currency benchmarks. Regulators in the U.K. and U.S. could reach settlements with some banks as soon as next month, and prosecutors at the U.S. Department of Justice plans to charge one by the end of the year, people with knowledge of the matter have said.

Spokesmen for Deutsche Bank, Barclays and UBS declined to comment on the Citigroup estimates.

The Citigroup analysts made their calculations using a Sept. 26 Reuters report that the U.K. Financial Conduct Authority settlements could include fines totaling about 1.8 billion pounds. They derived their estimates for how high fines could go in other investigations from that baseline, using banks’ settlements in the London interbank offered rate manipulation cases as a guide.

“Extrapolating European and, more importantly, U.S. penalties from a previous global settlement suggests to us a total potential global settlement on this key issue,” they said in the note.

Cooperation Rewards

U.K. authorities will probably account about $6.7 billion of fines across all banks, according to the Citigroup analysts. Other European investigations will account for $6.5 billion. Penalties in the U.S. cases could be about four times greater, hitting $28.2 billion.

The Citigroup analysts didn’t take into account the possible effect of banks’ collaboration with investigators. That can have a big impact on the size of the fines, lowering and even wiping out a penalty in some cases.

UBS and Barclays saw $4.3 billion worth of antitrust fines waived by European Union authorities in December in exchange for their early and full cooperation. Six others were fined 1.7 billion euros in that case, which involved rigging euro and yen interest rate derivatives.

UBS has sought leniency in exchange for handing over evidence of misconduct to U.S. antitrust investigators in the foreign-exchange probes, and was also the first to step forward to cooperate with the EU, people with knowledge of the matter have said.

To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net

To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net Heather Smith, Edward Evans

Source.

House Purchases Delayed After Real-time Payment System Goes Offline

Bank of England’s Real Time Gross Settlement payment system, which processes £277bn of money transfers a day including UK house purchases, resumes operations after being down for more than nine hours


The Bank of England has responsibility for RTGS Photo: DANIEL JONES

The Bank of England has responsibility for RTGS Photo: DANIEL JONES


By James Titcomb

4:14PM BST 20 Oct 2014

Update: The Bank of England says the system is back online, and that RTGS will remain open until 8pm on Monday ­ four hours later than usual ­ to process the backlog of orders.

CHAPS, which deals with the payments, says: “The Bank of England’s RTGS system is now processing payments again following a resolution of the technical issue experienced earlier today. As such, CHAPS is now processing the backlog of payments and is confident that all payments submitted today will be processed today.”


House purchases and other large transactions were unable to be completed on Monday after the infrastructure that processes large payments between British banks went offline, the Bank of England has said.

The central bank said the “Real Time Gross Settlement Payment System” (RTGS), which settles large transfers between banks, had gone offline at 6am on Monday morning. It remained so until late on Monday afternoon and will stay open until 8pm to deal with a backlog of payments.

The Bank said that the biggest payments were being processed manually and reassured the public that all payments would be on Monday, since the system has the capacity to process a large number of payments when it does go back online.

Smaller payments such as standing orders and direct debits use a different system and were not affected.

The RTGS is set up to settle large payments in real time, rather than at the end of the day, reducing risk.

The system ­ which processes payments such as house purchases ­ went down at 6am on Monday morning. The large banks were contacted early in the day, and the Bank disclosed the fault at around 11.30am.

Jonathan Harris, of the mortgage broker Anderson Harris said the issue could be “hugely inconvenient for buyers”.

“It is hugely fortunate that the Chaps system didn’t collapse on a Friday as this is by far the busiest day of the week for completions. However, with everyone pushing to complete on a Friday there are a proportion of deals which don’t happen ­ maybe 15pc ­ which are pushed back to the following Monday. These are already critical and if they are delayed yet again, it will be hugely inconvenient for buyers,” he said.

“Those in a long chain in particular will feel a cascading effect down the chain with potentially many people affected. Presuming the system is back up and running on Tuesday, then these deals should be able to complete then.”

The Bank of England said: “The Bank of England has identified a technical issue related to some routine maintenance of the RTGS payment system and has paused settlement while we resolve it.”


bankofengland Bank of EnglandBank of England issues statement on technical issue with RTGS http://t.co/VBzokdrsGy http://t.co/qhV3qR9dWv About six hours ago via Twitter Web Client  Favorite  Retweet Reply


“We are working to address this issue as quickly as possible, and restart the RTGS payment system in a controlled manner. The most important payments are being made manually and we can reassure the public that all payments made today will be processed.”

The RTGS routes payments made through CHAPS (the Clearing House Automated Payments System), which settles important and time­-sensitive payments, including house purchases.

According to the CHAPS website, it processed £70 trillion of payments last year and is used by 5,000 financial institutions.

A statement from CHAPS said it would be keeping operations running longer than normal on Monday afternoon to ensure that they go through.

” CHAPS is currently liaising with the Bank of England who are working hard to resolve the issue – which means payments submitted today will be processed,” it said.

The system helps keep the day­to­day running of banks going by acting as an intermediary between banks. If a payment is going to be made between banks, RTGS credits the bank receiving the funds quickly, and takes funds from the bank sending money, removing the risk for the receiving bank.

In effect, RTGS sits at the top of the payment structure for banks, as shown by this Bank of England document:

Bank of England

The other major payment system that uses RTGS is CREST, which processes transactions for financial instruments such as shares and bonds. However, CREST is not believed to be affected.

Euroclear, which runs CREST, said: “Euroclear is monitoring the current technical issue with the RTGS system at the Bank of England. We are working closely with the BoE and if necessary will extend our own operational deadlines, to ensure that all settlement and payment instructions will be processed today.”

Around £277bn a day is processed through CHAPS, up from the £254.5bn in 2011:

Bank of England

The financial analyst Lorcan Roche Kelly said the event was “every central bank’s nightmare”.


LorcanRK Lorcan Roche KellyThis is every cb’s nightmare (presume will be fixed fast) RT@fastFT: Bank of England pauses RTGS payment system http://t.co/Mzk64Q775U About five hours ago via TweetDeck  Favorite  Retweet  Reply


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