right balance between efficiency and risk, and because of a widespread recognition of the more integrated nature of national financial systems, success in this area would not have been possible in the past and will not be possible in the future without continued close cooperation between the official and private sectors, within and across national borders. i am very pleased to be part of an institution that has been at the center of these initiatives. we expect to continue to play that role in the future. it is worth stepping back a bit to describe some of the broad forces shaping the payments system that need to inform our priorities going forward. • we expect to see very rapid growth in the overall volume of financial transactions and the accompanying burdens on the payments infrastructure. in the mature economies, particularly in the u. s. and the u. k., we have seen the volume of financial transactions increase much more rapidly than gdp. this trend, which has much to do with the nexus of technology and financial innovation, shows no sign of slowing. with the bulk of world gdp and savings outside the united states, a significant share of it in countries growing more rapidly than the united states and with substantial financial development still ahead of them, it seems reasonable to plan for a world in which this extraordinary trajectory of growth in financial transactions continues. • as national financial systems become more integrated and financial institutions more global, payments systems increasingly operate across countries and legal regimes, and the scale of cross - border financial transactions has increased dramatically. the payments infrastructure of the global financial system is a complex patchwork of national and cross - border systems, not seamless, not uniform, but closely connected. this increases the exposure of any settlement system to developments across borders. and it means that the major international financial institutions face a substantially greater diversity of exposures, given the multiple systems in which they operate. • payments activity has become more concentrated in a smaller number of global financial institutions ; fewer major participants in payments systems now account for a larger share of volume and exposures in those systems. this has important implications for how we think about the vulnerability of the system to a financial or operational failure and about the financial resources that system operators need to maintain. • the growth in the over - the - counter derivatives market has advanced much more rapidly than the speed of improvement of important parts of the infrastructure that support the market, including contract documentation and post - trade processing, and the certainty of the legal arrangements for cross - product netting. this introduces a potential source of uncertainty that can

timothy f geithner : challenges facing the global payments system remarks by mr timothy f geithner, president and chief executive officer of the federal reserve bank of new york, at the sibos 2004 atlanta conference, atlanta, 14 october 2004. * * * i am pleased to have the chance to address sibos 2004. this is an important forum for us because a strong and efficient payments infrastructure is a vital strategic asset for the u. s. and the global financial system. i want to take this opportunity to talk about some of the forces shaping the evolution in this strategic infrastructure, the challenges they present, and the implications for participants, system operators, and the central banks who oversee them. in this context, i will try to identify some of the major priorities we see over the medium term in strengthening the safety and soundness and the operational resilience of the global payments and settlement system. over the past 15 years, we have brought about a major global effort to reduce the potential for systemic risk emanating from the key elements of the payment infrastructure - the large value payments systems and the securities and foreign exchange settlement systems. particularly notable are the 1989 g - 30 standards on clearance and settlement systems, the lamfalussy report, the launch of cls bank, and the paper on sound practices to strengthen the resilience of the u. s. financial system. these, and the series of internationally agreed standards for payments, securities, foreign exchange settlement systems set by central banks, securities regulators, and the private sector, have engendered a remarkable set of changes to improve safety and soundness and operational resilience in this increasingly global system. these are the types of efforts where the return is almost never quantifiable, for the pay - off comes in the avoidance of crisis and a better balance between efficiency and risk. by reducing settlement periods and moving more of the world to real time gross settlement, delivery versus payment and payment versus payment systems, these changes have made a major difference. they have significantly improved the capacity of the financial system to absorb shocks, to handle stress, and to reduce the risk of broader damage or contagion from financial failure in any part of the system. this is and must be a collective effort. it requires collaboration between the official sector and the private sector here in the united states and in the other major economies. and it requires collaboration among the major central banks. because of the shared interest of participants and the central banks in finding the