Payments and markets glossary

See letter of credit (L/C)

See minimum standards of the Lamfalussy report (Lamfalussy standards)

A funds transfer system through which large-value and/or high-priority funds transfers are made between participants in the system for their own account or on behalf of their customers. Although, as a rule, no minimum value is set for payments made in such systems, the average size of such payments is usually relatively large.

A payment, generally of a very large amount, which is mainly exchanged between banks or between participants in the financial markets and usually requires urgent and timely settlement.

Eurosystem central bank assigned with the primary oversight responsibility on behalf of the Eurosystem.

The risk of a loss being incurred on account of the unexpected application of a law or regulation, or because a contract cannot be enforced.

An irrevocable commitment by a bank (the issuing bank) or other issuer made at the request of a customer (the applicant third party) to pay a specified sum of money to a third party upon request, subject to terms and conditions drawn up in accordance with uniform customs and practices.

See cap (limit)

A trade where securities are released for delivery only if they become available from another trade.

The risk that a counterparty will not settle an obligation in full when it becomes due. Liquidity risk does not imply that a counterparty or participant is insolvent, since it may be able to effect the required settlement at some unspecified time thereafter.

In correspondent banking, an account held by one bank on behalf of another bank (the “customer bank”); the customer bank regards this account as its “nostro account”. Antonym: nostro account

An agreement among participants in a clearing or settlement system regarding the allocation of any losses arising from the default of either a participant in the system or the system itself.

The rule or formula stipulating the way in which losses arising from the default of either a participant in the system or the system itself are to be shared among the various parties in the event that a loss-sharing agreement is activated.