Denmark: Financial System Stability Assessment with reports on - IMF

60we would like to emphasize that the participants generally have far more eligible collateralthan needed for their daily net payments not only in VP settlement, but also in theSumclearing and CLS. 37Supervision of concentration risks that may stem from indirect participation <strong>with</strong> regard topayments in the VP-system is already part of the supervision of the “indirect participants”and the payment providers by the DFSA. However, based on the recommendations of theIMF, steps will be taken to further formalize supervision in this area.Central bank responsibilitiesThe recommendations to further strengthen the oversight of the Danish payment andsettlement systems are consistent <strong>with</strong> the self-assessment done by Danmarks Nationalbank.It should be noted though that important steps towards full observance of the internationalstandards on central bank oversight have already been taken. The legal basis, for instance,has been strengthened by an amendment to the STA, which has become effective fromMarch 1, 2006. Following this amendment, the “MoU between Danmarks Nationalbank andthe Danish <strong>Financial</strong> Supervisory Authority concerning Payment <strong>System</strong>s and ClearingCenters” will be revised <strong>with</strong> a view to further enhance the cooperation between the twoauthorities. In addition, Danmarks Nationalbank will take the necessary steps to broaden theoversight of the retail payment system (Sumclearingen) <strong>with</strong> a view to cover all majorcomponents of the system, including different payment instruments and sub-clearings. Highpriority will be assigned to formalize the oversight task through written procedures andguidelines. Thus, full observance is expected to be achieved in 2006.37 In a study triggered by this assessment, it was demonstrated that in 2005, all larger banks’ eligible collateralsignificantly exceeded their total net payment obligations in all systems—even when the participant <strong>with</strong> thelargest net payment obligation was <strong>with</strong>drawn from the settlement on every day during 2005 and all theremaining participant's net positions were recalculated. Among the minor banks, however, only a handful ofbanks had recalculated net positions, which on very few days surpassed the value of their eligible collateral.However, this reflects flaws in the methodology used in the study that tends to exaggerate the effects on smallbanks and does not include the fact that banks can pledge securities for intraday credit already in the settlementcycle in which the securities are received. The study “Protection of Settlement in Danish Payment <strong>System</strong>s” canbe found in <strong>Financial</strong> <strong>Stability</strong> 2006 published by Danmarks Nationalbank (Copenhagen). It is available on:http://www.nationalbanken.dk/.