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Global banks mull cash netting services

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Global banks mull cash netting services

A new payment netting initiative for high value payments, known as Cash Netting Services (CNS),   is being assessed by eight leading global banks, according to the online publication, “Fineextra.com”.

The report stated that CNS would help banks to reduce daily interbank payment flows significantly – and associated liquidity and capital management obligations, adding that eight banks were collaborating with the promoters of the initiative to gauge the size of the bilateral netting opportunity, and associated benefits in respect of improved cash and liquidity management practices and processes.

It is estimated that some $10 trillion a day is paid, gross, between banks, even after other asset specific netting and payments compression. The largest banks in each currency represent 15 per cent to 45 per cent of total payments value. To support such huge daily flows, over $1trillion of high quality liquid assets are required to be held in bank payment systems, with a corresponding impact on intraday liquidity efficiency and opportunity cost.

According to the report: “CNS addresses interbank payment and liquidity inefficiencies by identifying payment netting opportunities between banks. CNS analyses high value payments data from participating banks and, at agreed times, calculates and publishes net cash positions per currency between pairs of banks (providing details of all payments included in the net calculation).”

Also, net payment obligations are determined by bilateral netting agreement (by currency) between pairs of participating banks. In accordance with the terms of these agreements, participating banks receive payment messages in SWIFT format to facilitate net payments.

One of the founders of CNS, Nick Dyne, said: “The real cost to banks of supporting high value global payments, and opportunity cost of having cash tied up to support them, is $10s of billions a year. The enthusiasm of eight of the world’s largest global banks in providing comprehensive and detailed payments data to us to determine the size of the netting opportunity is a great endorsement of the potential value of the CNS service”.

The CNS service is expected to be fully implemented in 2018.

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