CHAPs. That would be the UK’s ‘Clearing House Automated Payment System’, which is used by account holders the nation over for the completion of large transactions, facilitating such things as house purchases and other large payments etc.
Of note, therefore, is the following finding from the Bank of England’s latest Payment Systems Oversight Report:
During the exceptional market stresses in early October 2008, the proportion of CHAPS payments made before midday fell significantly below the required level.
Luckily:… this shortfall did not persist and throughput quickly recovered to normal levels.
However (our emphasis):
It is possible that this temporary fall in CHAPS throughput was due to rationing of liquidity by members and caution over taking non-essential intraday counterparty credit risk. It is likely, for example, that members monitor receipts from other members before releasing large payments themselves. Under stressed circumstances, this could result in payments being made later in the day than usual, leading to banks’ systems being unable to complete payments by system deadlines and necessitating extensions.
Here’s a pictorial view of just how many extensions were needed to keep the system balanced:
Meanwhile in the City, as Bloomberg neatly surmises, the report found Lehman’s collapse created such confusion among traders about how to settle transactions that an emergency meeting had to be called with the FSA. As they explain:
Lehman’s default on Sept. 15 left market participants unsure how to deal with about 10 percent of the transactions pending in Crest, the systems that settles securities transactions in Britain, the U.K. central bank said in a report. Crest handles an average of 478 billion pounds ($712 billion) a day in gilt, equity and money market trades.
The Crest transactions at issue in September were arranged in over-the-counter markets, and traders weren’t sure how to use the default procedures that covered the other 90 percent of trades, the Bank of England said today.
There’s also the interesting fact that on separate occasions during September and October 2008, the UK’s Continuous Linked Settlement system broke its previous record daily volume by over 35 per cent; ‘Crest’ saw a 33 per cent increase in the highest value settled before September 2008; and ‘Swift’ saw new record volume days on four occasions.
Essentially, a lot of people moving a lot of money in a very short period of time. Unfortunately there is scant information regarding what stresses debit and credit card schemes like Maestro were experiencing in the period.
Related links:
Payment Systems Oversight Report 2008 - BoE
BOE:UK Payment, Settlement Processes Could Be Improved - WSJ
