Payments, Clearance, and Settlement:

A Guide to the Systems, Risks, and Issues

GGD-97-73: Published: Jun 20, 1997. Publicly Released: Jun 20, 1997.

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Jean G. Stromberg
(202) 512-3000


Office of Public Affairs
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Pursuant to a congressional request, GAO provided information about the nation's systems to effect financial transactions between purchasers and sellers of goods, services, and financial assets.

GAO noted that: (1) the United States has a wide variety of payments, clearance, and settlement systems; (2) some systems are used primarily for large-dollar payments, such as Fedwire and the Clearing House Interbank Payment System (CHIPS), others are used for the clearance and settlement of financial products, such as securities, futures, and options; (3) these systems are mainly used by major financial players, such as banks and other corporations, and are generally referred to as wholesale systems; (4) other systems are used for the smaller dollar transactions with which most consumers are familiar, e.g., checks, credit cards, and automated clearing house payments; (5) generally, these smaller dollar systems are referred to as retail systems; (6) new, consumer-oriented products, such as stored-value cards, are now being introduced; (7) a stored-value card is a credit-card-sized device with an implanted computer chip, that has a certain value and can be used for a variety of applications including financial transactions; (8) new services, such as electronic money, are also being tested and marketed; (9) electronic money is funds held in an online account that can be transferred over the Internet between any two parties, including consumer to consumer; (10) these new products and services have not yet gained wide acceptance, but many private sector companies are planning for the rapid expansion of these and similar products in the future; (11) many significant issues have been raised by industry officials, regulators, and others regarding the operations, use, and regulation of payments, clearance, and settlement systems; (12) for large-dollar transactions, some have raised the issue of the appropriateness of some institutions using less secure payment systems to reduce their costs of transfers; (13) others have raised issues about new and emerging products, such as stored-value cards and home banking; (14) also, many have raised questions about the appropriate regulatory structure for these products and services; (15) security issues for both wholesale systems, such as Fedwire and CHIPS, and emerging services, such as home banking, have also been raised; (16) the enormous volume and rapid growth in foreign exchange transactions have led to discussion and studies of how to better reduce risk in this market; and (17) finally, many private industry officials, especially private payment system providers, have raised issues for some time about the ability of the Federal Reserve to be both a regulator of payment systems and a fair competitor in delivering these payment services.

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