investments through the internet was introduced. while eliminating the systemic risks that was involved in the high value and time critical transactions, the central bank became the owner and operator of both the rtgs and sss systems. the service provider of the retail payment system is lankaclear ( pvt ) ltd which is owned jointly by the central bank and the commercial banks. two weeks ago, lankaclear ( pvt ) ltd introduced the cheque imaging and truncation system to ensure that cheques deposited in any part of the country is cleared and settled within two days except in uncleared areas. the cheque imaging system eliminates regional disparities in cheque clearing and establishes a common clearing schedule. in addition to these two systemically important payment systems, there are other small scale payments and settlements arrangements. they include the slips system which is also owned and operated by lankaclear and the us $ clearing system operated by a commercial bank. mr anura de silva, general manager lankaclear will give you the technical details of the cit system including some of the glitches that have surfaced in implementing the cheque imaging project. let me now deal with the institutional and legal arrangements and the impact of payment reforms very briefly. the focus will be on ( i ) the market arrangements for payment services ( ii ) the legal and regulatory framework ; ( iii ) the coordination of oversight of the payment system and regulation affecting the system ; and ( iv ) mechanisms for consultation with stakeholders. the rtgs and sss systems speedily transfer funds and make settlements of banks, primary dealers, financial institutions, investors, customers, the government and the public. these two systems bring about financial discipline among these stakeholders as they have to maintain adequate cash and reserves in their accounts to meet payment obligations. this also improves the liquidity management by banks as treasurers and fund managers have to produce accurate estimates of their daily liquidity requirements. more importantly, the users of the rtgs and sss systems can use central bank funds throughout the day for settlement purposes and return them at the end of the day. subject to the availability of acceptable collateral, the banks and primary dealers are provided with intra day liquidity by the central bank. to underpin the payment reforms undertaken by the central bank and enhance integrity and safety of such systems, a comprehensive legislation to govern payment, clearing and settlement systems in general and to provide the central bank with oversight and regulatory powers over various payment systems and money transfer service providers has been enacted

why the current turbulence has primarily affected the interbank markets at the core of our modern global financial system and why this weakness was not foreseen before last summer. because they were focusing on the balance sheets of the regulated banking institutions, observers wrongly underestimated the actual degree of leverage in the financial system as a whole – i mean all the leverage generated not only by the activities of commercial banks, but also by highly leveraged institutions, sivs, conduits, lbo - financed firms, etc ; that is, the leverage of all institutions that, implicitly or not, was predicated on backup credit lines being provided by regulated institutions in times of stress. looking forward i believe that the financial integration that has taken place in the euro zone since the advent of the euro in 1999 has contributed importantly to a remarkable rise in living standards and greater financial and economic stability. it follows that continued financial integration is essential to further the remarkable progress of europe. so the question is : what lessons should we draw from the current financial turbulence that can help to make the future course of european financial integration both stronger and more immune to financial disturbances at its core? i do not pretend to have an answer to this question – at least not yet. but in closing let me offer just four thoughts that are relevant to it. first, firm euro zone monetary policy will continue to play a key role in fostering further european financial integration. the european central bank has shown great success in maintaining an appropriate monetary stance while at the same time fine - tuning its liquidity operations in the interbank market so as to ensure that its overnight rate remains broadly on target, and that monetary conditions continue to be set effectively given prevailing macroeconomic conditions. and the ecb has also been a leading central bank in taking action to address dislocations in the longer - term interbank money markets, even though this has proven difficult to realise given that the term premium comes from banks ’ own uncertainties about liquidity and counterparty risks. my second thought is that there is clearly a need for greater transparency in financial markets on both sides of the atlantic. this can take many forms. one is to reduce product complexity : i expect to see more emphasis on financial assets – including structured products – that have simpler features to make them less illiquid in difficult market conditions. another is more refined rating scales for these assets, giving investors a better sense of their risk characteristics. there are signs that this is already happening in the marketplace,