A new report calls for action to tackle potential risk contagion channels in the global financial infrastructure.

The report, published today by the Committee on Payment and Settlement Systems (CPSS), warns that the speed and multiplicity of potential disruption channels across the global payment system are not adequately reflected in stress-tests, risk controls, contingency funding plans, and crisis management procedures. It documents how globalization and other long-term developments have made the network of domestic and cross-border systems underpinning financial markets more interconnected. Although these interconnections bring many benefits, they also create risks and vulnerabilities which need to be addressed, it finds.

The report lays out a framework for analyzing the risks of interdependencies, along with specific recommendations for the industry to address them. For instance, it calls for more sophisticated business continuity testing practices that include interdependent parties on a national and cross-border basis. It also recommends that central banks and other authorities review their policies in light of the increasingly integrated nature of the global financial infrastructure.

Additionally, the CPSS pledges to review and, where necessary, adapt its internationally recognised standards for the management of payment and settlement risks, especially operational and liquidity risks, to reflect the evolving challenges posed by interdependencies.

“Recent market conditions emphasise how important it is that the settlement infrastructure supporting financial markets is robust and reliable, even in adverse circumstances,” said Timothy Geithner, president of the Federal Reserve Bank of New York and CPSS chairman.