a long time the main interest of central banks in payment systems came from computer experts. payment systems used to be viewed merely as ‘ computers ’ that cleared and settled payment obligations. in the late 1980s the focus started to shift towards the financial risks, i. e. credit and liquidity risk inherent in payment systems. slowly it became common knowledge that payment systems could be a source of systemic risk by providing a channel through which the failure of one participant to meet its payment obligations could be passed on to other participants. in their own best interest and under the influence of the overseers operators started to protect their systems against financial risks - in most cases by building real - time gross settlement systems ( rtgs ). today almost every country is operating an rtgs system. there is now a widespread consensus within the private sector and the central banking community about the kind of operational requirements and financial risk controls that are necessary to make a payment system safe. a main contributor in this area has been the committee on payment and settlement systems ( cpss ) at the bank for international settlements ( bis ). as a standard - setting body the cpss has, for instance, drafted the core principles for systemically important payments systems. the core principles are a testimony of the consensus about standards for safety and efficiency in payment systems. the cpss has also played a leading role in raising the awareness of the risks involved in the settlement of foreign exchange transactions. it has also followed and to some extent promoted the cls project since its beginning. the safety of the clearing and settlement infrastructure has been a long - standing concern of the overseers. together with the financial industry they might even have enjoyed some pride while looking at what was achieved in terms of efficiency as well as safety and soundness of operations by the industry. but clearly, since september 11, 2001, a new awareness of vulnerability has grown on us all. those tragic events have made us rethink our approach vis - a - vis safety and operational risk. i think we all suddenly realized we had to reassess the vulnerability of our institutions and systems and, where necessary, improve their resilience. vulnerability - a quick survey ensuring that companies, consumers and investors have confidence in their ability to effect transactions and access their funds, securities, and other financial assets is of the highest importance in times of crisis. therefore it is clearly in the private and public interest to ensure that, in the event of any large - scale disruption, systemic consequences are minimized. however

, minimizing systemic consequences requires knowing the major vulnerabilities of the financial system. with this knowledge the responsible parties in the private sector as well as in central banks and government can in principle take adequate precautions and remedies. three sources of vulnerability can be identified. a first source of vulnerability is economic concentration among large and complex financial institutions. this may strike you as odd. but size is a potential source of vulnerability and industrial consolidation usually increases size. the financial industry has been experiencing numerous mergers and acquisitions. this has resulted in financial services offered by an increasingly small number of large and dominant players. even if only one of these players were to stop functioning well the financial system as a whole might suffer. the second source of vulnerability is geographical clustering. financial institutions are heavily clustered in a limited number of important international financial centers. economic concentration and geographical clustering tend to add up. a huge number of firms, among them the industry ’ s giants, may be affected in one and the same location by one and the same disruptive event. a third source of vulnerability is the large degree of connectivity and interdependency of the financial sector. y2k and the terrorist attacks of september 11, 2001, highlighted this type of vulnerability. one key lesson learnt was that vulnerability extends beyond these systems since they crucially rely on utilities such as electricity and telecommunications or on service providers like s. w. i. f. t. let me sum up again. there are three major sources of a financial system ’ s vulnerability : economic concentration, geographic clustering, and connectivity and interdependency. the latter are an obvious characteristic of financial networks. networks contribute to increased efficiency and facilitate risk management. at the same time they also can act as channels as well as origins of systemic crisis. from vulnerability to resilience hand in hand with a new awareness of the vulnerability of the financial system, those responsible for its safety and stability in private firms, in financial market infrastructures as well as in the regulatory agencies have recently been taking a new hard look at the financial system ’ s capacity for resilience. in retrospect the y2k problem was a first mild but nevertheless rather valuable test. the y2k test was mild in the sense that everybody had enough time to prepare for it. what helped in y2k was the clear deadline. all the contingency and communication networks could be set up before the event. many of us gathered here today knew