Reserve Bank of Australia Annual Report – 2008 Banking and Payments
The Reserve Bank provides a range of banking, registry and payment settlement services to other institutions in the Australian financial system, to the Australian Government and some of its agencies, and to other central banks and international bodies. These include the provision of banking services to the Australian Government for the core public accounts operated by the Department of Finance and Deregulation, facilities for transactional banking, custody, registry and associated services, and the operation of a real-time gross settlement system for Australian dollar high-value payments.
The Reserve Bank charges fees for these services, being particularly careful where these services extend beyond the core activities of central banks – e.g. the transactional banking and registry services provided to Australian government agencies – to ensure that they are provided on a comparable basis to similar facilities offered by commercial banks and other private-sector organisations.
Banking
The Reserve Bank provides banking and related services to the Australian Government, the Future Fund, the Australian Office of Financial Management (AOFM) and a number of overseas central banks and other official institutions. It also provides transactional banking services to various government agencies. These services are focused on payment and bill collection services, and are provided on a commercial basis in line with the Australian Government's competitive neutrality guidelines. A number of commercial banks also provide transactional banking services to government agencies.
As the core banker to the Australian Government, the Reserve Bank maintains a group of accounts, called the Official Public Accounts (OPA) Group, in which the Commonwealth's at-call cash balances are held. It also provides the Government with a term deposit facility for investment of its cash reserves and a strictly limited short-term overdraft facility to cater for occasions where there is an unexpected demand on Commonwealth cash balances. These broad arrangements have been established under an agreement with the Department of Finance and Deregulation. The AOFM has day-to-day responsibility for ensuring there are sufficient cash balances in the OPA Group and for investing excess Commonwealth funds in term deposits at the Reserve Bank. The Bank also offers term deposit investment facilities to other government entities, including the Future Fund Board of Guardians and the Communications Fund, based on the term deposit service it provides to the Australian Government.
The Reserve Bank also provides a debt securities custodian service to the Communications Fund, which is currently managed by the AOFM under a delegated authority from the Minister for Communications, Information Technology and the Arts and the Minister for Finance and Deregulation. Securities held by the Bank on behalf of the Communications Fund are held in Austraclear, a debt securities settlement system owned by Austraclear Limited (a wholly owned subsidiary of the ASX Ltd).
The Reserve Bank's transactional banking services are used by around 90 government agencies. These agencies can require service features that are common to government but not routinely requested by other users of payment and collection services. Because of its particular focus on the government sector, the Reserve Bank is able to provide facilities tailored to their specific requirements. These include features such as extremely high standards of system reliability and availability, purpose-built overnight reporting and the flexibility to react quickly when changes in government policy require consequent changes to systems and processes.
The Reserve Bank's transactional banking services include the provision of direct entry payments, high-value payments settled through the Reserve Bank Information and Transfer System and cheque payments. The Bank's larger customers access these services through direct link arrangements, while smaller customers use ReserveLink, the Bank's desktop banking facility. An internet-based service delivery system, known as RBANet, allows agencies to initiate account and transaction enquiries, perform statistical analysis of transaction activity at aggregate and account levels and manage the status of unpresented cheques. All of the Reserve Bank's proprietary banking systems are supported and developed by a dedicated in-house team of IT specialists. During 2007/08, direct entry transactions processed by the Reserve Bank on behalf of its customers accounted for around 12½ per cent of the total number of direct entry payments in the Australian payments system. The number of cheque and high-value electronic payments processed on behalf of government clients is much smaller and accounted for only a minor share of the total number of these payments.
The Reserve Bank also provides its government agency customers with access to a number of bill collection services, including BPAY©, over-the-counter, phone and internet-based collections via Australia Post, and card-based collection services via telephone and the internet using a third‑party service provider. During the past year, a number of government agencies began using these bill collection services for the first time. The Bank also offers an overseas banking service, which enables customers electronically to request overseas payments to be made via cheque, electronic funds transfer (wires) and direct entry. Overseas cheques can be drawn in 30 currencies, while wire payments can be made in more than 130 currencies. The Bank's customers can also initiate overseas direct entry payments in the local payments systems of 23 countries.
In July 2007, the Reserve Bank's business resumption site (BRS) became operational. For Banking Department, this saw the transfer of 16 permanent positions to the BRS. The Department's senior management team also works from the BRS on a rotational basis, with one member of the team working from the BRS on most business days. The BRS also houses back-up systems supporting the Reserve Bank's banking and registry services. These arrangements have enhanced the Bank's ability to continue to provide banking services in the event that its Head Office, or primary systems, are unavailable.
Earnings after tax in 2007/08 for the Reserve Bank's transactional banking services were $2.3 million, compared with $2.7 million the previous year.
Registry
The Reserve Bank provides registry services to the Australian Government, under an agreement with the AOFM, and a number of official foreign institutions that have Australian dollar debt programs. In common with other registry operators, the services provided to clients include registration of new issuance, ongoing maintenance of ownership records, distribution of interest payments and redemption of securities at maturity.
The Reserve Bank also offers a small-investor facility using its own CGS holdings, which enables retail investors to buy CGS. Information relating to the small-investor facility, including indicative buying/selling prices, is available on the Reserve Bank's website.
Because wholesale financial market participants settle their CGS trades electronically in Austraclear, the level of transaction activity in the Reserve Bank's registry is quite low and consists mainly of small-investor activity. Earnings after tax for the CGS registry business in 2007/08 were $0.1 million, the same as the previous year.
Settlement Services
The Reserve Bank Information and Transfer System (RITS) is owned and operated by the Reserve Bank, and provides the Australian financial system with a real-time interbank payment and settlement service. It is accessed by around 60 institutions approved by the Bank to operate an Exchange Settlement Account (ESA).
Payments between these institutions are settled in RITS across respective ESAs. About 90 per cent of these payments, by value, are settled on a real-time gross settlement (RTGS) basis, including time-critical customer payments, all wholesale debt and money market transactions and Australian dollar legs of foreign exchange transactions. The latter includes Australian dollar trades involved in Continuous Linked Settlement (CLS), for which net amounts are paid to and received from CLS Bank each day.
During 2007/08, the value and number of RTGS transactions grew strongly, continuing the trend evident over the previous financial year. On average, RITS settled 31,000 transactions totalling $194 billion each day in 2007/08, representing growth of 13.5 per cent and 15.8 per cent, respectively, over comparable figures for 2006/07. The highest daily value of transactions during the year was $312 billion, on 28 September 2007.
RITS has operated as an RTGS system since June 1998. Over the 10 years since then, the transaction load handled by the system has almost doubled on most measures.
| 1998/99 | 2007/08 | |
|---|---|---|
| Average daily number | 15,783 | 30,656 |
| Peak daily number | 25,024 | 46,670 |
| Average daily value ($b) | 101.8 | 194.3 |
| Peak daily value ($b) | 160.1 | 311.8 |
RITS also settles batches of netted interbank payments. One batch is a dedicated multilateral settlement at around 9.00 am, mainly for payments arising from cheque, direct entry and retail card transactions, which are cleared overnight prior to interbank settlement across RITS. In addition, RITS provides a flexible batch settlement facility for approved parties to submit batches of netted interbank payments to RITS at any time during the business day. This facility is used once each day by the Australian Stock Exchange for settlement of payments arising from equity transactions cleared through its electronic settlement system, CHESS. The facility was also used on 12 May for the first settlement arising from the Electronic Conveyancing system established by the Victorian Government to facilitate electronic settlement, transfer, mortgage and lodgement of property title.
The Reserve Bank invests significant resources to ensure that RITS technical infrastructure and operational resilience are commensurate with its critical importance to the financial system. As part of an ongoing RITS evolution program, the original character-based RITS user interface has been replaced with a modern browser-based interface utilising high security standards. This project was completed during 2007/08 with the cut-over to the new interface of all Reserve Bank administration and management functionality; it follows migration of functionality for external users during the previous year. Completion of this project has allowed the Bank to commence an upgrade of the core RITS hardware, operating system and database. This is expected to be completed during 2009 and will further strengthen RITS resilience. It will also provide a better base for system support and maintenance, and deliver improvements in capacity and performance.
Future improvements to RITS business functionality planned for the coming two years include the introduction of additional liquidity optimisation features, including targeted bilateral offsetting of queued payments.
Commencement of operations at the BRS has provided a significant enhancement to the Reserve Bank's capacity to maintain RITS and Reserve Bank settlement operations in the event of a major contingency affecting its Head Office premises. Staff located at the BRS enable the operation of split shifts, with staff present at both Head Office and the BRS during RITS settlement hours, to maintain continuity of operations in the event that an incident compromises the occupation of either site.
To enhance communications in response to an operational disturbance, the Reserve Bank has established arrangements to communicate with RITS Members via distribution of e-mail, SMS and voice messages. This facility replaces the use of time-consuming call trees and provides rapid distribution of information to a large number of contacts simultaneously. The service also provides communications facilities for the Australian Payments Clearing Association in the event of a crisis.
Settlement services are also provided for banknote lodgements and withdrawals by commercial banks and for high-value transactions undertaken by the Reserve Bank and its customers, including the Australian Government and overseas central banks and official institutions. At the end of June 2008, 37 central banks and official institutions overseas were using the settlement and safe custody services provided by the Bank to settle their Australian dollar transactions.