settlement system, but also to raise the system ’ s operational reliability and efficiency in the area of securities transactions. all of these planned improvements to the functioning of the payment and settlement system demand a high level of cooperation between the private and public sectors. in my view, it is especially important for the financial services sector to support common interests and shared goals. i say this because i am convinced that only through these joint initiatives can the financial services sector adequately address efficiency issues and the potential for systemic risk in the current environment. at the same time, i recognize that industry - wide efforts pose new challenges as they are applied to ever more difficult and complex issues. the push for t + 1 will require the committed support of both the public and private sectors because the stakes are very high. i would like to turn now to the securities settlement system and the federal reserve. since its inception, the federal reserve system has been deeply interested in the design and operation of the securities settlement system in the united states. the federal reserve ’ s interest stems from its overall concern for the efficiency, reliability and stability of the financial system as a whole. first and foremost, the federal reserve system was created by congress in 1914 to oversee the stability of the nation ’ s financial system. as part of its oversight responsibilities, the federal reserve banks stand ready to lend funds from the discount window to us depository institutions and, under extraordinary circumstances, to other us entities. in addition, the federal reserve is a member of the international community of central banks, bank supervisors and securities regulators and, as such, works cooperatively with its counterparts in other countries to promote financial stability globally. second, the federal reserve is responsible for supervising us depository institutions and us bank and financial holding companies, some of which are very involved in the securities settlement system. commercial banks provide wholesale custodial services to both institutional investors and intermediaries in the securities business. commercial banks also lend to firms in the financial services sector, providing short - term credit and thereby adding critical liquidity to securities markets. furthermore, some of the very largest commercial banks earn a substantial portion of their net revenues from the various payment and credit services they offer to the securities industry. in addition, the federal reserve and the securities and exchange commission jointly regulate and oversee the depository trust and clearing corporation through which privately issued bonds and equities are settled in the united states. third, as fiscal agent, the federal reserve provides a variety of payment - related services on behalf of the

jamie b stewart, jr : developments in the us payment and settlement system and the federal reserve ’ s interest in the securities settlement system remarks by jamie b. stewart, jr, first vice - president and chief operating officer of the federal reserve bank of new york, before the securities industry association t + 1 foundation conference held in new york on 24 october 2000. * * * good afternoon, ladies and gentlemen. i am pleased to join you at the sia ’ s t + 1 foundation conference. this conference provides an excellent opportunity to review plans that have been announced for converting to a t + 1 settlement cycle for securities transactions. implementation of t + 1 would represent a significant change in the payment and settlement environment. before commenting on this arrangement, however, i would like to stand back for a few moments and focus on some of the plans under way to improve the functioning of the payment and settlement system in the united states. in addition, i would also like to discuss briefly the federal reserve ’ s interest in the securities settlement system. there can be no doubt that a sound and effective payment and settlement system is critical to ongoing confidence in the us financial markets and to the continued health and competitiveness of the us financial sector. in an environment of rapid technological change and rising trading volumes such as we face today, it is essential to make certain that the integrity of the payment and settlement system remains intact. to this end, a number of initiatives are currently in progress to help ensure the continued efficiency of the payment and settlement system in the united states. let me be a bit more specific about some of the planned improvements to the infrastructure of the financial system that we expect to be implemented in a very short time. the first is the cls bank project, the continuous linked settlement bank, which has been under discussion since 1995. the owners of the cls bank are in the process of building the bank ’ s systems and getting supervisory approval to begin operations in the fall of next year. the purpose of the cls bank is to create a privately owned and operated facility for payment - versuspayment settlement of foreign exchange transactions. today, many foreign exchange transactions carry principal risk - that is, the risk that only one of the two legs of the transaction will be executed. this risk exists because of differences in the operating hours of large - value payment systems around the globe. however, when transactions are settled through the cls bank, the two legs of the transaction will be executed simultaneously with finality, thereby