First New Zealand Bank To Implement Fxnet
Westpac Institutional Bank Media Release
9 July 2001 MEDIA RELEASE
WESTPAC INSTITUTIONAL BANK FIRST NEW ZEALAND BANK TO IMPLEMENT FXNET
Westpac Institutional Bank is reducing its foreign exchange settlement risks and costs by being the first bank in New Zealand to implement FXNET - the global automated netting service, operated exclusively by EBS Dealing Resources.
FXNET provides an automated process for "netting by novation". Netting by novation allows currency transactions between two organisations to be netted into a single settlement amount for each currency for each settlement date rather than each transaction being settled individually.*
Westpac Institutional Bank ’s strategic decision to implement FXNET comes at a time when regulators are pushing to ensure that banks also take steps to better manage operational risks. The Bank for International Settlements Capital Accord is proposing to introduce a measured charge (estimated to be about 12-18% of capital requirement) that will be dependent on the level of action taken around operational risk.
Commenting on the initiative, Westpac Institutional Bank Head of New Zealand Operations Peter Thomas said: "Westpac Institutional Bank is pleased to be the first New Zealand bank to join FXNET as this system is proven to reduce FX settlement exposures. Customers will benefit from dealing with a bank that has less settlement risk and lower costs. We expect FXNET to reduce our FX settlement risk exposure by at least 70% and by 80% in volume of payments.
"Currently Westpac Institutional Bank has netting arrangements through FXNET with its head office in Sydney and Citibank Singapore. Going forward, we expect to be netting with our other trading parties that are also FXNET users. We hope other New Zealand banks will also join FXNET to reduce exposures and increase efficiencies across the industry."
*Editor's Note: For
example, if Westpac Institutional Bank bought a total of
USD$100 million as result of a number of deals with another
bank and also entered into deals with that same bank to sell
USD$70 million for the same settlement date, the net
outwards payment for Westpac Institutional Bank would be
just USD$30 million (a 70% reduction in settlement risk).