, if exposures change over time and one party comes to represent a credit risk to the other, the party posing the credit risk will post collateral to cover some ( or all ) of the exposure. these programs offer market participants a powerful tool for helping control credit risk, but they also embody substantial documentation and operational challenges. alternative procedures could lead to risk reduction in many areas of the settlement of otc derivatives. collateral programs themselves could be strengthened to provide even greater benefits. need to address backlogs. most dealers acknowledge that the failure to confirm trades heightens the risk that the transaction will be unenforceable. because unconfirmed trades create the potential that errors in trade records and management information systems will go undetected, they also create the possibility that both market and credit risk will be measured incorrectly. quantitative measures of market risk and credit risk are only as good as the transaction data on which they are based. most firms active in the markets recognize the need to address the backlogs in confirmations. the crmpg report, for example, directed several recommendations toward firms ’ need to improve market practices in this area, and it set a target of confirming trades within five days of the trade date. the problem of backlogs can be attacked from two directions. first, individual firms can strengthen their policies with regard to confirmations. they could monitor backlogs more carefully and devote resources to reducing those backlogs. they could enhance internal systems for capturing trade data and generating confirmations. management can place a priority on reducing the backlog and assign clear responsibility for such reduction. second, backlogs can be reduced by standardizing and electronically matching confirmations or by developing electronic trading systems that create a match at the time of the trade. these latter methods for reducing backlogs clearly must be pursued collectively. a system for electronically matching confirmations will be helpful only if substantial portions of a firm ’ s counterparties use the same system. similarly, electronic trading systems require a critical mass of participants. need to strengthen collateral management practices. the volatile market conditions that surrounded the ltcm episode provided a test of many firms ’ risk management systems and particularly their collateral programs. during the episode, collateral successfully mitigated credit risk, as designed. however, events also highlighted weaknesses in current policies and programs. these weaknesses have been examined in some depth in studies both by banking supervisors and by isda. it is important to address them because improperly managed collateral programs may give

economic agents in an efficient and safe way, payment infrastructures are a key support to one of the core functions of money, namely money as a means of exchange. in the eu, infrastructures processing payments in euro consist in a number of arrangements, which are of different nature. for example, the exchange of payment orders in euro between financial intermediaries can be handled within multilateral systems or within the framework of correspondent banking bilateral arrangements. although there is a great number of arrangements that ensure money transfers between financial intermediaries, in practice, financial transfers tend to be concentrated on a few of them. thus, the largest volumes and values of payment orders are currently carried out in multilateral payment systems. on the basis of several surveys conducted by the eurosystem since 1999, we consider that the market share of these systems is nearly 80 %, both in terms of volume and value. however, we should not minimise the role of correspondent banking, which holds the remaining 20 % of the market. correspondent banking arrangements also show a high degree of concentration : out of all reporting banks to the eurosystem ’ s survey, the ten largest banks account for about 80 % of the overall value of correspondent banking transactions. moreover, correspondent activities of some banks are substantial and similar in size to those of some interbank funds transfer systems. the issue of the infrastructures diversity for payments in euro across the eu was raised prior to, and due to, the introduction of the euro. at that time, it was realised that diversity had drawbacks to the extent that it came together with a discrepancy of service level between national and cross border payments, at the expense of the latter. with respect to the objective of financial integration, it was clear that this situation could not be considered as an optimum. the issue was taken into account before the launch of the euro. the re - engineering of payments processing, aiming at notably closing identified efficiency and safety gaps between cross - border and national payment infrastructures, appeared as a pillar for ensuring a high degree of monetary and financial integration in europe. the eurosystem has been closely involved in lifting obstacles to the european financial integration in particular with respect to those related to payment infrastructures, in support of market initiatives, including notably those of the eba. the rationale for such an involvement is in line with the statutory role of the eurosystem. indeed, pursuant to the treaty, the responsibility of ensuring the smooth functioning of payment systems is one