Payment Systems: Central Bank Roles Vary, but Goals Are the Same

Payment Systems: Central Bank Roles Vary, but Goals Are the Same
(25-FEB-02, GAO-02-303).

The central banks of major industrialized countries have agreed
on common policy objectives and presented them in the Core
Principles for Systematically Important Payment Systems. Intended
to help promote safer and more efficient payment systems
worldwide, the Core Principles outline specific policy
recommendations for systematically important payment systems and
describe the responsibilities of the central banks. All of the
central banks GAO studied seek to ensure that their wholesale
payment systems operate smoothly and minimize systemic risk. All
of the central banks provide settlement services for their
countries' wholesale payment systems. Some central banks also
provide wholesale clearing services. Other central banks own the
system but have little operational involvement in clearing, while
others participate in partnerships with the private sector. All
of the central banks GAO studied provide settlement for some
retail payment systems. Some, but not all, central banks exercise
regulatory authority over retail payment systems in their
countries. Central banks also tend to have less operational
involvement in countries where there is a relatively concentrated
banking industry. In some cases, laws governing payments and the
structure of the financial services industry direct the
involvement of central banks in retail payment systems.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-303
ACCNO: A02789
TITLE: Payment Systems: Central Bank Roles Vary, but Goals Are
the Same
DATE: 02/25/2002
SUBJECT: Federal reserve banks
Financial management
International agreements
National banks
Payments
ECB Trans-European Automated Real-time
Gross Settlement Express Transfer System

FRS Fedwire Funds Transfer System
New York Clearing House Association
Clearing House Interbank Payments System

******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-02-303

United States General Accounting Office

GAO Report to Congressional Requester

February 2002

PAYMENT SYSTEMS

Central Bank Roles Vary, but Goals Are the Same

GAO-02-303

Contents

Letter

Results in Brief

Background

Core Principles Establishes Internationally Accepted Policy Objectives That,
Along with National Law, Guide Central Bank Involvement in Payment Systems

Central Banks Are Involved in the Operations and Oversight of Wholesale
Payment Systems

Central Bank Involvement in Retail Payment Systems Varies Considerably and
Is Influenced by a Variety of Factors

Agency Comments 1 2 4

15 19 Tables Table 1: The Federal Reserve System's Market Share of Payment

Appendixes
Appendix I: Objectives, Scope, and Methodology 21
Appendix II: The Core Principles for Systemically Important Payments
Systems and Central Bank Responsibilities 23
Appendix III: Different Wholesale Settlement Systems Mitigate Different
Risks 24
RTGS Systems Mitigate Systemic Risk 24
Net Settlement Systems Reduce Liquidity Needs 25

Appendix IV: Comments from the Federal Reserve System 27

Services 8

Table 2: Risks to Which Payment Systems Are Subject 10

Table 3: Common Retail Payment Instruments 16

Table 4: Relative Importance of Checks in Selected Countries,

1996-99 19 Table 5: Core Principles for Systemically Important Payments
Systems 23

Contents

Abbreviations

ACH automated clearinghouse
CHAPS Clearing House Automated Payment System
CHIPCo Clearing House Interbank Payments Company LLC
CHIPS Clearinghouse Interbank Payments System
CPSS Committee on Payment and Settlement Systems
ECB European Central Bank
LVTS Large Value Transfer System
MCA Monetary Control Act
NYCHA New York Clearing House Association LLC
RTGS real-time gross settlement
TARGET Trans-European Automated Real-time Gross settlement Express

Transfer

United States General Accounting Office Washington, D.C. 20548

February 25, 2002

The Honorable Carolyn B. Maloney

Ranking Minority Member, Subcommittee on Domestic Monetary Policy,
Technology, and Economic Growth Committee on Financial Services House of
Representatives

Dear Ms. Maloney:

This report responds to your request that we study the roles of central
banks in payment systems to provide perspective on the roles played by the
Federal Reserve System1 in the United States' payment system. Payment
systems play an important role in the financial and economic health of
nations. The smooth functioning of payment systems that handle very
high-value, institution-to-institution payments-or wholesale payment
systems-is important in ensuring the stability of financial markets and
systems. Well-functioning payment systems that handle the low-value payments
that constitute the bulk of payment transactions-or retail payment
systems-are important in helping to maintain public confidence in financial
systems. The degree to which a central bank should be involved in the
payment system has been the subject of controversy. Views on this issue have
evolved over time and therefore are likely to remain open to debate.2

We discuss the involvement of foreign central banks in their payment systems
to provide perspective on the roles and functions of the Federal Reserve
System in the U.S. payment system. We describe the roles of the Federal
Reserve System in the Background section of this report. Although unique
country characteristics make it difficult to conduct direct comparisons of
the roles that central banks play in payment systems difficult, we reviewed
these roles to illustrate the factors that influence the involvement of
central banks in payment systems. The objectives of this

1The Federal Reserve System comprises the Board of Governors and the Federal
Reserve Banks. The Federal Reserve Banks own and operate the wholesale and
retail payment systems offered by the Federal Reserve System, while the
Board of Governors provides oversight of these operations and serves as the
regulator where they possess such authority. In this report, we use the term
"Federal Reserve System" generically to refer to either entity.

2U.S. General Accounting Office, Federal Reserve System: Mandated Report on
Potential Conflicts of Interest, GAO-01-160 (Washington, D.C.: Nov. 13,
2000).

report are to (1) identify internationally recognized objectives for payment
systems and central bank involvement in those systems, (2) describe the
roles of central banks in the wholesale payment systems of other major
industrialized countries and the key factors that influence those roles, and
(3) describe the roles of central banks in the retail payment systems of
other major industrialized countries and the key factors that influence
those roles.

We reviewed literature provided by central banks and central bank
organizations, foreign law commentaries, central bank Web sites, and
academic studies. Our information on foreign laws is based on secondary
sources and does not reflect our independent legal analysis. We also
interviewed Federal Reserve System officials, members of trade associations,
and academics. In analyzing the roles of other central banks in payment
systems, we focused on countries with relatively modern, industrialized
economies.3 Appendix I presents a detailed discussion of the scope and
methodology of our work.

Results in Brief The primary objective of all central banks is to ensure the
smooth functioning of their countries' payment systems. Although their
specific roles may vary slightly, the central banks of major industrialized
countries have agreed on this and other common policy objectives and
presented them in the Core Principles for Systemically Important Payment
Systems (Core Principles).4 Intended to help promote safer and more
efficient

3For this report, we focused on Australia, Canada, France, Germany, Japan,
the United Kingdom, and the United States.

4The Core Principles was developed by the Committee on Payment and
Settlement Systems (CPSS) of the G-10 Central Bank Governors. The
secretariat for this committee is provided by the Bank for International
Settlements. The CPSS established the Task Force on Payment System
Principles and Practices in May 1998 to consider what principles should
govern the design and operation of payment systems in all countries. The
task force sought to develop an international consensus on such principles.
The task force included representatives (1) from major industrial nations'
central banks and the European Central Bank, (2) from 11 other national
central banks of countries in different stages of economic development from
all over the world, and (3) from the International Monetary Fund and the
World Bank. The task force also consulted groups of central banks in Africa,
the Americas, Asia, the Pacific Rim, and Europe.

systemically important5 payment systems worldwide, the Core Principles
outlines specific policy recommendations for systemically important payment
systems and describes responsibilities of central banks. The Core Principles
is silent on the question of whether central banks should operate
systemically important payment systems. However, many central banks believe
that central bank operation of at least one large value funds transfer
system in an economy is fundamental to financial stability. The Core
Principles also recommends that central banks oversee all systemically
important payment systems' compliance with the Core Principles, including
private-and public-sector systems. While the laws6 of the countries we
studied give the central bank broad responsibility for ensuring that payment
systems operate smoothly, some central banks are not specifically charged
with providing payment clearing services,7 and some do not have explicit
authority to regulate payment systems.

All of the central banks we studied seek to ensure that their wholesale
payment systems operate smoothly and minimize systemic risk. However, they
pursue these goals in different ways that are influenced by various factors,
such as the structure and history of the country's banking system. All of
the central banks we studied provide settlement services for their
countries' wholesale payment systems. In addition, some central banks that
we reviewed provide wholesale clearing services. Other central banks have
little operational involvement in clearing, but own the system, while others
participated in partnerships with private-sector entities.

Among the countries we studied, the roles of central banks in clearing
retail payments varied more than they did with wholesale systems.
Nonetheless, central banks consider retail payments to be an important
component of their payment systems; therefore, central banks have some

5A payment system is systemically important where, if the system were not
sufficiently protected against risk, disruption within it could trigger or
transmit further disruptions among participants or systemic disruptions in
the financial area more widely.

6Our discussion of the laws of other nations is based on secondary sources
rather than our original legal analysis.

7Clearing refers to transmitting, reconciling, and, in some cases,
confirming payment orders before settlement, possibly including the netting
of instructions and the establishment of final positions for settlement.
Settlement refers to the process of recording the debit and credit positions
of two parties in a transfer of funds. We discussed these and other aspects
of payment systems in the following: U.S. General Accounting Office,
Payments, Clearance, and Settlement: A Guide to the System, Risk, and
Issues, GAO/GGD-97-73 (Washington, D.C.: June 20, 1997).

responsibility in fostering the smooth functioning of retail payment
systems. All of the central banks we studied provide settlement for some
retail payment systems. Some, but not all, central banks exercise
regulatory8 authority over certain retail payment systems in their
countries. The different roles played by central banks in retail payment
systems reflect the influences of a variety of factors. For example, many
European countries, such as Germany, the Netherlands, and Switzerland, have
well-developed systems for credit transfers in which the central bank is not
involved as a service provider. This reflects a history of payment networks
established by postal organizations and other institutions like credit
cooperatives, which provided financial services to the general population.
Central banks also tend to have less operational involvement in countries
where there is a relatively concentrated banking industry. In some
countries, laws governing payments and the structure of the financial
services industry direct the involvement of central banks in retail payment
systems. Finally, central bank roles in retail payment systems reflect
geographic and economic differences among countries.

Background The Federal Reserve System is involved in many facets of
wholesale and retail payment systems in the United States, including

* providing wire transfers of funds and securities;

* providing for the net settlement of check clearing arrangements, automated
clearinghouse (ACH) networks, and other types of payment systems;

* clearing checks and ACH payments; and

* regulating certain financial institutions and overseeing certain payment
systems.

Responding in part to a breakdown of the check-collection system in the
early 1900s, Congress established the Federal Reserve System as an active
participant in the payment system in 1913. The Federal Reserve Act directs

8We use the term "regulatory" to indicate the authority to issue and enforce
specific regulations governing the payment system. In our previous report,
GAO-01-160, we found no evidence to suggest that the Federal Reserve has not
adequately separated its role as a provider of services and its roles as
regulator, supervisor, and lender.

the Federal Reserve System to provide currency in the quantities demanded by
the public and authorizes the Federal Reserve System to establish a
nationwide check clearing system, which has resulted in the Federal Reserve
System's becoming a major provider of check clearing services.

Congress modified the Federal Reserve System's role in the payment system
through the Monetary Control Act of 1980 (MCA).9 One purpose of the MCA is
to promote an efficient nationwide payment system by encouraging competition
between the Federal Reserve System and private-sector providers of payment
services. The MCA requires the Federal Reserve System to charge fees for its
payment services, which are to be set to recover, over the long run, all
direct and indirect costs of providing the services. Before the MCA, the
Federal Reserve System provided payment services to its member banks for no
explicit charge. The MCA expanded access to Federal Reserve System services,
allowing the Federal Reserve System to offer services to all depository
institutions, not just member banks. Congress again expanded the role of the
Federal Reserve in the payment system in 1987 when it enacted the Expedited
Funds Availability Act.10 This act expanded the Federal Reserve Board's
authority to regulate certain aspects of check payments that are not
processed by the Federal Reserve System.

Through specific regulatory authority and its general authority as the
central bank, the Federal Reserve plays an important role in the oversight
of the nation's payment systems. The Federal Reserve Board has outlined its
policy regarding the oversight of private-sector clearance and settlement
systems in its Policy Statement on Payment Systems Risk. The second part of
this policy incorporates risk management principles for such systems.11

9Depository Institutions Deregulation and Monetary Control Act of 1980, Pub.
L. No. 96-221 sect. 107.

10Pub. L. No. 100-86, Title VI, sect. 609 (2000).

11These standards are based on the Lamfalussy Minimum Standards, which are
the forerunners of the Core Principles.

The Federal Reserve System competes with the private sector in providing
wholesale payment services. Wholesale payment systems are designed to clear
and settle time-critical and predominantly large-value payments.12 The two
major wholesale payment systems in the United States are the Fedwire funds
transfer system, owned and operated by the Federal Reserve System, and the
Clearing House Interbank Payments System (CHIPS), which is owned and
operated by the Clearing House Service Company LLC, a subsidiary of the New
York Clearing House Association LLC (NYCHA) for use by the participant
owners of the Clearing House Interbank Payments Company LLC (CHIPCo).
Fedwire is a real-time gross settlement (RTGS) system through which
transactions are cleared and settled individually on a continuous basis
throughout the day.13 CHIPS began operations in 1970 as a replacement for
paper-based payments clearing arrangements.14 Since January 22, 2001, CHIPS
has operated as a real-time settlement system.15 Payment orders sent over
CHIPS are either simultaneously debited/credited to participants' available
balances or have been netted and set off with other payment orders and the
resulting balance is debited/credited against participants' available
balances throughout the day.16 The transfer of balances into CHIPS and
payments

12Although the wholesale payment systems of some countries handle securities
transactions, we do not discuss securities settlement systems in this
report.

13A daylight overdraft occurs when a depository institution's Federal
Reserve account is in a negative position during the business day. In
Fedwire, an institution that incurs an overdraft is charged a fee that is
based on its average daily overdraft, and the size of the overdraft is
limited according to a predetermined cap.

14Each of the 57 CHIPS members, primarily large money-center banks, has an
ownership interest in CHIPCo, the company that owns and operates CHIPS.
Management of CHIPCo is directed by the CHIPCo board, which is elected by
the membership. The CHIPCo board sets strategy and makes key decisions.

15Before January 22, 2001, CHIPS operated as an end-of-day multilateral net
settlement system.

16During the day, net settlement may be either bilateral (i.e., offsetting
payment orders to and from two institutions) or multilateral (i.e.,
offsetting payment orders to and from all participants). Payment orders that
remained queued until the end of the processing day are settled on a
multilateral net basis.

out occur via Fedwire.17 The Federal Reserve System oversees CHIPS'
compliance with its Policy Statement on Payment Systems Risk.18

The size and aggregate levels of wholesale transactions necessitate timely
and reliable settlement to avoid the risk that settlement failures would
pose to the financial system. Although wholesale payments constitute less
than 0.1 percent of the total number of transactions of noncash payments,
they represent 80 percent of the total value of these payments. Moreover, in
1999, the value of payment flows through the two major wholesale systems in
the United States, Fedwire and CHIPS, was approximately 69 times the U.S.
gross domestic product in that year.

The Federal Reserve System also competes with the private sector in
providing retail payment services. For example, the Federal Reserve System
provides ACH and check clearing services. ACH systems are an important
mechanism for high-volume, moderate to low-value, recurring payments, such
as direct deposit of payrolls; automatic payment of utility, mortgage, or
other bills; and other business-and government-related payments.19 The
Federal Reserve System also competes with private-sector providers of check
clearing services. To do this, the Federal Reserve operates a nationwide
check clearing service with 45 check processing sites located across the
United States.20

The Federal Reserve System's market share of payment services as of year-end
1999 is represented in table 1.

17Since 1981, CHIPS has used an account at the Federal Reserve Bank of New
York for settlement purposes.

18The Federal Reserve staff charged with administering the Policy Statement
on Payments System Risk are separate from the staff providing payment
services such as Fedwire.

19ACH payments can flow through one or multiple operators. Transactions
processed within the Federal Reserve Banks' ACH network settle in the
participants' Federal Reserve Bank accounts or in the Federal Reserve Bank
account of a correspondent institution. Transactions that are cleared and
processed within a private-sector operator's network generally settle on a
net basis through the net settlement services provided by the Federal
Reserve Banks. ACH transfers that flow over two or more networks must comply
with the operational guidelines and fees of each network.

20As part of this nationwide service, the Federal Reserve Banks use
private-sector couriers to transport checks between offices, see U.S.
General Accounting Office, Check Relay: Controls in Place Comply With
Federal Reserve Guidelines, GAO-02-19 (Washington, D.C.: Dec. 12, 2001).

Table 1: The Federal Reserve System's Market Share of Payment Services

Volume of transactions in millions

Market share, by year

Payment system 1995 1996 1997 1998

Large-Value systemsa

Fedwireb 75.9 82.6 89.5 98.1 102.8

CHIPSc 51.0 53.5 59.0 59.1

Check clearing Automated clearing houses

Federal Reserve Systemd 16,128.0 16,129.0 16,531.0 17,107.0 17,589.0
Private clearing houses and 28,145.0 29,852.0 30,020.0 30,082.4 30,304.7
direct exchangese
"On-us" checks 18,690.0 18,703.0 19,542.0 19,810.6 20,106.3

Federal Reserve Systemf 2,645.0 2,997.0 3,280.4 3,719.0 4,152.2

Privateg 249.7 318.4 407.0 553.9 532.4

"On-us" ACH 595.0 738.0 861.0 1,057.0 1,557.6

aNumber of originations. Data do not include nonvalue messages.

bFedwire is operated by the Federal Reserve System.

cCHIPS, the Clearing House for Interbank Payments System, is operated by the
New York Clearing House Association.

dIncludes personal, commercial, government and traveler's checks, and
commercial and postal money orders.

eChecks are processed with "on-us" by private check clearing houses, direct
exchange, or the Federal Reserve.

f Includes all government and commercial debit and credit transfers as well
as transfers sent by private, automated clearing houses to the Federal
Reserve System for transmission to the receiving depository institution. In
1999, these were an estimated 153 million transfers. However, according to
the Federal Reserve System, despite strong growth in both volume and value,
the Federal Reserve System's market share of ACH transfers fell during the
1994-98 period as private ACH networks experienced even more explosive
growth.

gThe Electronic Payments Network, the largest private ACH services provider,
estimates that its market share in 2001 had risen to approximately 20
percent.

Source: GAO analysis is based on the following: Bank for International
Settlements, Committee on Payment and Settlement Systems, Statistics on
PaymentSystemsin the Group ofTen Countries- Figures for 1999.

During forums held by the Federal Reserve System's Committee on the Federal
Reserve System in the Payments Mechanism, held in May and June, 1997,
committee members and Federal Reserve staff met with representatives from
over 450 payment system participants, including banks of all sizes, clearing
houses and third-party service providers, consumers, retailers, and
academics. Although a few large banks and

clearing houses thought the Federal Reserve System should exit the check
collection and ACH businesses, the overwhelming majority of forum
participants opposed Federal Reserve System withdrawal. Participants were
concerned that the Federal Reserve System's exit could cause disruptions in
the payment system.

Core Principles

Establishes Internationally Accepted Policy Objectives That, Along with
National Law, Guide Central Bank Involvement in Payment Systems

The Core Principles illustrates how the central banks see their roles in
pursuing their objective of smoothly functioning payment systems.21 Further,
the Core Principles outlines central banks' roles in promoting the safety
and efficiency of systemically important payment systems that they or others
operate. The laws of the countries we studied support this aspect of the
Core Principles. These countries charge their central banks with broad
responsibility for ensuring the smooth operation and stability of payments
systems. In their basic role as banks, central banks generally are charged
with acting as a correspondent bank for other institutions, providing
accounts, and carrying out interbank settlements. Nonetheless, countries'
laws vary regarding the specific roles a central bank should play in the
payment system.

Core Principles Outlines Central Banks' Objectives and Responsibilities for
Systemically Important Payment Systems

Central banks in the G-10 countries22 and Australia have endorsed the Core
Principles, which sets forth 10 basic principles that should guide the
design and operation of systemically important payment systems in all
countries as well as four responsibilities of the central bank in applying
the Core Principles. (The principles and responsibilities are presented in
app. II.) The overarching public policy objectives for the Core Principles
are safety and efficiency in systemically important payment systems.
Although the Core Principles generally is considered to apply to wholesale
payment systems, some payments industry officials said that some payment
systems that process retail payments could reasonably be considered
systemically important because of the cumulative size and volume of the
payments they handle.

21Systemically important payment systems are a major channel by which shocks
can be transmitted across domestic and international financial systems and
markets. In most cases, these are wholesale payment systems.

22The G-10 is made up of 11 major industrialized countries that consult on
general economic and financial matters. The 11 countries are Belgium,
Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland,
the United Kingdom, and the United States.

Providing for the safety of payment systems is mostly a matter of mitigating
the risks inherent to the systems. These risks are listed and defined in
table

Table 2: Risks to Which Payment Systems Are Subject Risk Definition

Credit The risk that a participant in a payment system will be unable to
meet, in full, its financial obligations in the system when due or at any
future time.

Liquidity The risk that a participant in a payment system will be unable to
meet its financial obligations in the system when expected due to
insufficient funds, but may be able to pay in full at some later time.

Settlement The risk that settlement in a payment system will not take place
as expected. This risk can involve both credit and liquidity risk. It can
also arise as a result of the operational risk.

Operational The risk that technical or mechanical problems in a system or
mistakes by human operators will cause disruptions to a system that could
result in unexpected losses.

Systemic The risk that the failure of one participant in a transfer system,
or in financial markets generally, to meet its required obligations will
cause other participants or financial institutions to be unable to meet
their obligations (including settlement obligations in a transfer system)
when due. Such a failure may cause significant liquidity or credit problems
and, as a result, might threaten the stability of financial markets.

Legal The risk of loss because of the unexpected applications of a law or
regulation or because a contract cannot be enforced.

Fraud The risk that a wrongful or criminal deception will lead to a
financial loss for one of the parties involved.

Source: GAO analysis of various industry publications.

Core Principle IV seeks to mitigate settlement risk by endorsing prompt
final settlement, preferably during the day but, minimally, at the end of
the day. The two major types of wholesale payment settlement systems are
RTGS and multilateral netting systems. Recently, several hybrid systems have
also been developed. (These two major types of systems are described further
in app. III.) In general, multilateral netting systems offer greater
liquidity because gross receipts and deliveries are netted to a single
position at the end of the day. An institution can make payments during the
day as long as its receipts cover the payments by the end of the day.
However, multilateral netting systems without proper risk controls can lead
to significant systemic risk. Because transactions are processed throughout
the day, but not settled until the end of the day, the inability of a member
to settle a net debit position could have large unexpected liquidity effects
on other system participants or the economy more broadly. RTGS systems rely
on immediate and final settlement of transactions, and these systems have
much less exposure to systemic risk that could result from a

settlement failure. Without a system for the provision of adequate intraday
credit, these systems cause potential liquidity constraints because they
require that funds or credit be available at the time that a payer initiates
a transaction.23

Efficiency in payment systems can be characterized as both operational and
economic. Operational efficiency involves providing a required level and
quality of payment services for minimum cost. Cost reductions beyond a
certain point may result in slower, lower quality service. This creates
trade-offs among speed, risk, and cost. Going beyond operational efficiency,
economic efficiency refers to (1) pricing that, in the long run, covers all
of the costs incurred and (2) charging those prices in a way that does not
inappropriately influence the choice of a method of payment.

The Core Principles sets forth four responsibilities of the central bank in
applying the core principles, two of which address oversight functions. The
first is that the central bank should ensure that the systemically important
systems it operates comply with the Core Principles, and the second is that
the central bank should oversee compliance with the Core Principles by
systems it does not operate, and it should have the ability to carry out
this oversight.24 Therefore, the Core Principles affirms the importance of
central banks' oversight responsibility for their countries' systemically
important payment systems, including those that they do not own or operate.

23Daylight credit is an important aspect of the RTGS systems discussed in
this report. For Fedwire, the Federal Reserve System allows, within certain
guidelines, the use of daylight overdrafts in banks' Federal Reserve
accounts, as outlined in the Federal Reserve Board's Policy Statement on
Payments System Risk. In other countries, various forms of intraday credit
are used, including daylight overdrafts and intraday repurchase agreements.

24The other two responsibilities relate to how the central bank should
clearly define and publicly disclose payments objectives and cooperate with
other central banks and relevant authorities.

Laws Give Many Central Banks Broad Responsibility for Ensuring Efficient
Operations and Reducing Systemic Risk in Payment Systems

The laws of most of the countries we studied give the central bank broad
responsibility for ensuring that payment systems operate smoothly. In
addition, in their basic role as banks, central banks are generally charged
with providing accounts to certain financial institutions and effecting
interbank settlement. While some countries are specifically charged with
providing additional payment services or regulating private payment systems,
others are not. Similarly, regulatory and oversight authority is not always
specified in laws but is obtained through historical development and the
broader mission of the central bank.

The European Central Bank (ECB) is the central bank for the countries that
have adopted the euro.25 In conjunction with the euro area countries'
national central banks, the ECB oversees payment systems for the euro area
and operates the Trans-European Automated Real-time Gross settlement Express
Transfer (TARGET) system, the primary payment system for euro payments.26
The ECB's powers and responsibilities are similar to those of national
central banks. We therefore analyzed the ECB along with countries' national
central banks. In developing TARGET, the ECB set out strict rules regarding
the national central banks' provision of payment services, requiring each
central bank to provide a RTGS system, which serves as a local component of
TARGET.

The laws of Canada, France, Japan, and the United Kingdom cast the central
bank as a monitoring entity having general powers to ensure that payment
systems do not pose systemic risk. The central banks in those countries are
not specifically charged with providing particular payment clearing
services. However, as a matter of practice, the central bank in France,
which plans to discontinue its check clearing service in 2002, will continue
to operate services related to check fraud. Although Australia's law
recognizes a limited role for the Reserve Bank of Australia to act as a
service provider, the Reserve Bank of Australia's primary purpose regarding
payments systems is to serve as an oversight and regulatory mechanism
designed to control risk to promote the overall efficiency of Australia's
financial system. German law authorizes the Bundesbank to furnish payments
services, and the Bundesbank performs retail payment

25The 11 countries that have adopted the euro include Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal, and Spain.

26TARGET is a RTGS system that transfers an average of 211,282 transfers per
day, totaling a daily average of about 1.3 trillion euro.

functions, including check processing, credit transfers, checks, and direct
debits as well as owning and operating RTGSplus, which is an RTGS hybrid
system for wholesale payments.

The central banks we studied have general authority to take actions to
protect against systemic risk. In some cases, the banks are to serve a
particular regulatory function. For example, under Canadian law, the central
bank decides upon the qualifications of payment systems determined by the
central bank to pose systemic risk. However, except for Germany, Australia,
and the United States, the laws of the countries we reviewed generally do
not contemplate that the central bank is to regulate the provision of
payment services for purposes unrelated to systemic risk.

Central Banks Are Involved in the Operations and Oversight of Wholesale
Payment Systems

All of the central banks we studied provide settlement for wholesale payment
systems. Moreover, these central banks participated in the design and
development of, and have oversight over, wholesale payment systems. Most
central banks play a role in providing these wholesale payment services.
However, as demonstrated by the central banks we studied, central bank
involvement in wholesale payment systems varies. Some central banks have
full ownership and operational involvement in the payment system; others
have little operational involvement beyond settlement services. Other
central banks participate in partnerships. In some cases, the central bank
is a major provider or perhaps the only provider of wholesale payment
services. The Federal Reserve System, as previously noted, is a major
provider of wholesale payment services.

Central Banks Participated in the Design and Development of Wholesale
Payment Systems

Each of the central banks we reviewed has participated in the design and
development of its country's wholesale payment system. For example, the
Bundesbank collaborated in developing the RTGSplus system. The Bank of
France played a major role in the development of France's systems. The Bank
of England cooperated with the Clearing House Automated Payment System
(CHAPS)27 in the development of a new system, NewCHAPS;28 the

27CHAPS is an electronic transfer system for sending same-day payments from
bank to bank.

28Following a strategic review, the CHAPS Clearing Company and the Bank of
England developed NewCHAPS, which was designed to be an enhanced replacement
RTGS service for CHAPS Sterling and CHAPS Euro.

Bank of Canada assisted in the design and development of the Large Value
Transfer System.

In the G-10 countries, the first automated RTGS system was Fedwire in the
United States, which is owned and operated by the Federal Reserve System.
Although there are some net settlement systems for wholesale payments today,
many countries are transitioning to RTGS systems. In Europe, various
decisions over the past 5 to 10 years have encouraged current and potential
euro area countries to develop national RTGS systems. The trend toward RTGS
systems extends beyond Europe's boundaries, as countries worldwide are
adopting RTGS systems.

Central Banks' Roles in Providing and Overseeing Wholesale Payment Systems
Vary

Central banks we studied played various roles in providing and overseeing
wholesale payment services. All central banks provide key settlement
services for wholesale payment systems. Some central banks own and operate
wholesale payment systems that include clearance and settlement while others
only provide oversight and settlement, leaving clearance and other
processing activities to other parties. There is no clear pattern in the
roles played by central banks in clearing wholesale payments.

In addition to the United States, two of the central banks we studied, the
Bundesbank and the Bank of France, have full ownership of their respective
wholesale payment systems. The Bundesbank owns and operates the RTGSplus
system, which was developed with the input of the German banking industry.
The Bundesbank has full control over the practices of the system for
large-value payments.

The Bank of France owns and manages Transferts Banque de France, which is a
RTGS system that is one of the two wholesale payment systems in France. The
Bank of France is also a joint owner of the company that owns and operates
France's other wholesale payment system, which is a hybrid,29 real-time net
settlement system. Although the Bank of France is only a partial owner of
this system, it can exert considerable influence over it by virtue of its
ownership role in the controlling company.

The Bank of England is a member and shareholder of CHAPS Inc., which
operates England's sterling and euro RTGS systems. Although the Bank of

29The Paris Net Settlement system is described as a hybrid because it offers
a netting mechanism while transactions are settled in real time.

England does not own or manage any payment clearing system, CHAPS payments
settle by transferring funds among participating institutions' Bank of
England accounts. The Bank of England is the settlement bank for both the
CHAPS Sterling and CHAPS Euro.

The Bank of Canada has a more limited operational role in its system. The
Bank of Canada entrusts the ownership and operation of the Large Value
Transfer System (LVTS) to the Canadian Payments Association, which the Bank
of Canada chairs. The Bank of Canada expressly guarantees settlement of LVTS
in the event of the simultaneous default of more than one participant, and
losses exceed available participant collateral. This guarantee is likened to
"catastrophic insurance with a very large deductible," with the latter being
the collateral provided by the participants.

Central Bank Involvement in Retail Payment Systems Varies Considerably and
Is Influenced by a Variety of Factors

Although the extent of central bank oversight over retail payment operations
varies, central banks generally consider retail payments as an important
component of the payment system. As such, central banks have some
responsibility for promoting well-functioning retail payment systems. The
operational role of the central bank in retail payment clearing varies
considerably among the countries we studied. The basic structure of retail
payment systems depends largely on the structure of the underlying financial
system and on the historical evolution of payment processes. Factors that
influence central bank involvement in retail payment systems include the
history and structure of the country's payment system and banking industry.
While we identified several factors that influenced the involvement of a
central bank in its country's retail payment system, these factors interact
uniquely and occur to varying degrees in the systems we studied.

Retail Payments Are Paper-Based or Electronic and May Be Cleared through a
Variety of Arrangements

Retail payments are generally lower in value and urgency from the
perspective of the financial system than wholesale payments, but retail
payments occur more frequently. They typically include consumer and
commercial payments for goods and services. Noncash retail payment
instruments are generally categorized as paper-based (most commonly checks)
or electronic (most commonly credit cards, credit transfer, debit cards, and
direct debits). These payment instruments are further described in table 3.

Table 3: Common Retail Payment Instruments

Payment instrument Definition Paper-based

Checks Written orders from one party (the drawer) to another (the drawee,
normally a bank) requiring the drawee to pay a specified sum on demand to
the drawer or to a third party specified by the drawer. Checks may be used
for settling debts and withdrawing money from banks.

Electronic

Credit cards Instruments indicating that the holder has been granted a line
of credit. Credit cards enable holders to make purchases and/or withdraw
cash up to a prearranged ceiling; the credit granted can be settled in full
by the end of a specified period or can be settled in part, with the balance
taken as extended credit. Interest is charged on the amount of the extended
credit, and the holder is sometimes charged an annual fee.

Credit transfers (GIRO) Payment orders or possibly a sequence of payment
orders made for the purpose of placing funds at the disposal of the
beneficiary. Both the payment instructions and the funds described therein
move from the bank of the payer/originator to the bank of the beneficiary,
possibly via several other banks as intermediaries and/or more than one
credit transfer system.

Debit cards Cards that enable the holder to have purchases directly charged
to funds on an account at a deposit-taking institution. The debit function
may sometimes be combined with another function, such as cash withdrawal or
check guarantee, on a single card.

Direct debits Preauthorized debits on the payer's bank account initiated by
the payee.

Source: Bank for International Settlements, Committee on Payment and
Settlement Systems, A GlossaryofTermsUsed inPaymentsand
SettlementSystems,2001.

Central banks provide settlement for retail payments, but commercial banks
also settle retail payments. Where the central bank provides settlement, it
does so for "direct participants"-that is, institutions having settlement
accounts at the central bank. Settlement of payments at the central bank
sometimes requires tiering arrangements. Under these arrangements, "direct
participants" settle payments through their accounts at the central bank,
with indirect participants' settling accounts with a direct participant with
whom they have a settlement arrangement. Such is the case with the Bank of
England, which acts as a banker to the settlement banks that are direct
members of the United Kingdom's primary payment clearing association.
Settlement of retail payments may also occur through settlement agents,
third-party arrangements, or correspondent accounts that institutions hold
with each other for bilateral settlement.

Despite Variations in Central Bank Involvement, Most Have an Interest in
Promoting Well-Functioning Payment Systems

Although many central banks work to ensure that their retail payment systems
are well-functioning, their approaches diverge. Some central banks play a
prominent regulatory and operational role in retail payments and see these
roles as keys to fostering well-functioning retail systems, while others
assume more limited roles. Whatever the level of involvement in oversight or
operations, most central banks consider retail payments as important
components of the payment system and therefore assume some responsibility in
promoting well-functioning retail payment systems.

Structural Factors Influence Central Bank Involvement in the Clearance of
Retail Payments

A number of structural factors influence the central bank's role in retail
payments. For example, the involvement of the central bank in check clearing
can vary. In countries with a concentrated banking industry, on-us check
clearing will occur with higher frequency. On-us checks are checks that are
deposited at the same bank on which they are drawn, so that no third party,
including the central bank, is required for clearing or settlement. For
example, Canada has few banks, heavy check use, and little central bank
involvement in clearing retail payments.30 On the other hand, the United
States has a large number of banks and its central bank is heavily involved
in providing check clearing services. If a country has many smaller banks,
such as savings, rural, and cooperative banks, there will be more need for
some kind of retail clearance system, thereby creating greater potential
need for central bank involvement.

30 The Bank of Canada does provide interbank net settlement for these
payments.

Identifying the extent to which payment preferences influence central bank
involvement in clearing payments is difficult. Some have suggested that
central banks in countries that rely heavily on paper-based instruments are
more involved in clearing retail payments, and that central banks of
countries that are more reliant on electronic payments provide fewer
clearing services. Central banks involved in check clearing include those in
Germany, France, and the United States.31 France and the United States rely
heavily on checks for retail payments. In contrast, the Bundesbank is
heavily involved in clearing a variety of retail payment instruments, but
Germany is not particularly reliant on checks as a means of payment.

The physical size of a country determines the distances that payment
instructions might have to travel between the paying and the drawing banks.
This has particular relevance in countries that rely heavily on paper-based
instruments such as checks, which might have to be physically moved great
distances to be processed. For example, this is the case in the United
States, which is much larger than any European country. The United States
currently has approximately 19,000 depository institutions. Canada, on the
other hand, has far fewer financial institutions but is also physically
large and uses checks extensively. Private-sector correspondent banks clear
many checks and compete with the central bank. The central bank, however, is
perceived as a reliable and neutral intermediary to clear payments and
provide settlement on a large scale for a diverse set of institutions.

Table 4 shows the relative importance of noncash payment instruments in
selected countries.

31Due to check truncation, check payments in France are largely processed
electronically, and all check clearing houses operated by the Banque de
France will be closed in 2002. The Banque de France remains involved in
guarding the safety of check payments in France by maintaining two national
databases that contain information on lost or stolen checks and individuals
barred from using checks.

Table 4: Relative Importance of Checks in Selected Countries, 1996-99

Volume of cashless transactions, by year Country 1996 1997 1998

n/a = not
applicable

Source: Bank for
International
Settlements,
Committee on
Payment and Settlement Systems, Statistics on PaymentSystemsin the Group
ofTen Countries-Figures for1999, 2001.

Other Factors Influence the Involvement of Central Banks in Retail Payment
Systems

A central bank's role in the retail payment system reflects historical
events and developments that have shaped retail payment systems in a
particular country over many years. For example, the GIRO system serves as a
primary retail payment in many European countries. The GIRO system was
originally developed by the European Postal agencies, rather than by banks.
Historically, European banking systems were largely decentralized and in
most cases highly regulated. Therefore, in the absence of an efficient
payment system for retail payments developed by the banking industry, payers
in most European countries turned to national institutions, such as the
postal service, which offered credit transfers (so-called GIRO payments)
through a nationwide network of branches. Commercial banks subsequently
began to offer GIRO services. As a result of these events, many European
countries have well-developed systems that do not rely on central bank
clearing for credit transfers. These systems were originally established by
the public sector to respond to needs that were not being met by the private
sector. Similarly, as previously noted, the Federal Reserve System was
established to respond to events that pointed to the lack of a private
remedy to market problems.

Agency Comments We received comments on a draft of this report from the
Board of Governors of the Federal Reserve System. These comments are
reprinted in appendix IV. Board staff also provided technical comments and
corrections that we incorporated as appropriate.

We are sending copies of this report to the chairman of the House
Subcommittee on Domestic Monetary Policy, Technology, and Economic Growth;
the chairman of the Board of Governors of the Federal Reserve System; the
president of the Federal Reserve Bank of Atlanta, and the president of the
Federal Reserve Bank of New York. We will make copies available to others on
request.

Please contact me or James McDermott, Assistant Director, at (202) 512-8678
if you or your staff have any questions concerning this report. Other key
contributors to this report are James Angell, Thomas Conahan, Tonita W.
Gillich, Lindsay Huot, and Desiree Whipple.

Sincerely yours,

Thomas J. McCool Managing Director, Financial Markets and

Community Investment

Appendix I

Objectives, Scope, and Methodology

The objectives of this report are to (1) identify internationally recognized
objectives for payment systems and central bank involvement in those
systems, (2) describe the roles of central banks in the wholesale payment
systems of other major industrialized countries and the key factors that
influence those roles, and (3) describe the roles of central banks in the
retail payment systems of other major industrialized countries and the key
factors that influence those roles.

In analyzing the roles of other central banks in payment systems, we focused
on countries with relatively modern, industrialized economies. These
countries included Australia, Canada, France, Germany, Japan, the United
Kingdom, and the United States. To identify widely held public policy
objectives for payment systems, we reviewed Core Principles for Systemically
Important Payment Systems, which was developed by the Committee on Payment
and Settlement Systems (CPSS), of the Bank for International Settlements.
The CPSS established the Task Force on Payment System Principles and
Practices in May 1998 to consider what principles should govern the design
and operation of payment systems in all countries. The task force sought to
develop an international consensus on such principles. The task force
included representatives not only from G-10 central banks and the European
Central Bank but also from 11 other national central banks of countries in
different stages of economic development from all over the world and
representatives from the International Monetary Fund and the World Bank. The
task force also consulted groups of central banks in Africa, the Americas,
Asia, the Pacific Rim, and Europe. We also reviewed materials available on
the Web sites of the central banks we studied; these sites often included
mission statements, basic data, and authorizing statutes. We reviewed a
variety of legal analyses and commentaries to analyze those statutes. Where
we make statements regarding to central banks' authorizing statutes, they
are based on these sources rather than on our original legal analysis.

To describe the roles of central banks in the wholesale and retail payment
systems of other major industrialized countries and the key factors that
influence those roles, we reviewed materials available on central bank Web
sites as well as other articles and publications from various central banks.
We reviewed publications available from the Bank for International
Settlements, and also the European Central Bank's Blue Book: Payment and
Securities Settlement Systems in the European Union. We also reviewed
numerous articles and commentaries on the roles of central banks as well as
discussions of recent reform efforts. To enhance our understanding of these
materials, we interviewed Federal Reserve officials,

Appendix I
Objectives, Scope, and Methodology

members of trade associations, and officials from private-sector payment
providers.

We conducted our work in Washington, D.C., and New York, N.Y., between June
2001 and January 2002 in accordance with generally accepted government
auditing standards.

Appendix II

The Core Principles for Systemically Important Payments Systems and Central
Bank Responsibilities

The core principles for systemically important payments systems (core
principles) are shown in table 5.

Table 5: Core Principles for Systemically Important Payments Systems
Principle Description

The system should have a well-founded legal basis under all relevant
jurisdictions.

The system's rules and procedures should enable participants to have a clear
understanding of the system's impact on each of the financial risks they
incur through participation in it.

The system should have clearly defined procedures for the management of
credit risks and liquidity risks, which specify the respective
responsibilities of the system operator and the participants and which
provide appropriate incentives to manage and contain those risks.

The system should provide prompt final settlement on the day of value,
preferably during the day and at a minimum at the end of the day.

A system in which multilateral netting takes place should, at a minimum, be
capable of ensuring the timely completion of daily settlements in the event
of an inability to settle by the participant with the largest single
settlement obligation.

Assets used for settlement should preferably be a claim on the central bank;
where other assets are used, they should carry little or no credit risk and
little or no liquidity risk.

The system should ensure a high degree of security and operational
reliability and should have contingency arrangements for timely completion
of daily processing.

The system should provide a means of making payments that is practical for
its users and efficient for the economy.

The system should have objective and publicly disclosed criteria for
participation, which permit fair and open access.

The system's governance arrangements should be effective, accountable and
transparent.

The responsibilities of the central bank in applying the core principles are
as follows:

* The central bank should define clearly its payments objectives and should
disclose publicly its role and major policies with respect to systemically
important payments systems.

* The central bank should ensure that the systems it operates comply with
the core principles.

* The central bank should oversee compliance with the core principles by
systems it does not operate and should have the ability to carry out this
oversight.

* The central bank, in promoting payment system safety and efficiency
through the core principles, should cooperate with other central banks and
with any other relevant domestic or foreign authorities.

Appendix III

Different Wholesale Settlement Systems Mitigate Different Risks

Different forms of settlement for wholesale payments result in different
risks. Various wholesale payment systems in major industrialized countries
use similar means to transmit and process wholesale payments. However, they
sometimes use different rules for settling those transactions. In general,
wholesale payments are sent over separate, secure, interbank electronic wire
transfer networks and are settled on the books of a central bank. That is,
settlement is carried out by exchange of funds held in banks' reserve
accounts at a central bank. However, various wholesale payment systems use
different rules for settling these large-value payments. Some systems
operate as real-time gross settlement (RTGS) systems, which continuously
clear payment messages that are settled by transfer of central bank funds
from paying banks to receiving banks. Other systems use net settlement
rules, wherein the value of all payments due to and due from each bank in
the network is calculated on a net basis before settlement. Each form of
settling wholesale payments presents different risks to participants.
Recently, some hybrid systems have been developed, building on the strengths
and minimizing the risks associated with pure RTGS or netting systems.

RTGS Systems Mitigate Systemic Risk

RTGS systems are gross settlement systems in which both processing and
settlement of funds transfer instructions take place continuously, or in
real time, on a transaction by transaction basis. RTGS systems settle funds
transfers without netting debits against credits and provide final
settlement in real time, rather than periodically at prespecified times. In
most RTGS systems, the central bank, in addition to being the settlement
agent, can grant intraday credit to help the liquidity needed for the smooth
operation of these systems. Participants typically can make payments
throughout the day and only have to repay any outstanding intraday credit by
the end of the day.

Because RTGS systems provide immediate finality of gross settlements, there
is no systemic risk-that is, the risk that the failure to settle by one
possibly insolvent participant would lead to settlement failures of other
solvent participants due to unexpected liquidity shortfalls. However, as the
entity guaranteeing the finality of each payment, the central bank faces
credit risk created by the possible failure of a participant who uses
intraday credit. In the absence of collateral for such overdrafts, the
central bank assumes some amount of credit risk until the overdrafts are
eliminated at the end of the day.

Appendix III Different Wholesale Settlement Systems Mitigate Different Risks

In recent years, central banks have taken steps to more directly manage
intraday credit, including collaterization requirements, caps on intraday
credit, and charging interest on intraday overdrafts. Fedwire was
established in 1918 as a telegraphic system and was the first RTGS system
among the G-10 countries. Presently, account tallies are maintained
minute-by-minute. The Federal Reserve Banks generally allow financially
healthy institutions the use of daylight overdrafts up to a set multiple of
their capital and may impose certain additional requirements, including
collateral. In 1994, the Federal Reserve System began assessing a fee for
the provision of this daylight liquidity. Other central banks have only
recently adopted RTGS systems and have established a variety of intraday
credit policies, such as intraday repurchase agreements, collateralized
daylight overdrafts, and other policies.

Net Settlement Systems Reduce Liquidity Needs

Other networks operate under net settlement rules. Under these rules, the
value of all payments due to and due from each bank in the network is
calculated on a net basis bilaterally or multilaterally. This occurs at some
set interval-usually the end of each business day-or, in some newly
developed systems, continuously throughout the day. Banks ending the day in
a net debit position transfer reserves to the net creditors, typically using
a settlement account at the central bank.

Net settlement systems, with delayed or end of business day settlement,
enhance liquidity in the payment system because such systems potentially
allow payers to initiate a transaction without having the funds immediately
on hand, but available pending final settlement. However, this can increase
the most serious risk in netting systems, which is systemic risk.
Recognizing that systemic risk is inherent in netting systems, central banks
of the G-10 countries formulated minimum standards for netting schemes in
the Lamfalussy Standards.32 The standards stress the legal basis for netting
and the need for multilateral netting schemes to have adequate procedures
for the management of credit and liquidity risks.

32The main objective of the Lamfalussy Standards is that the participants
and the service providers should have both the incentives and the capability
to manage credit and liquidity risks arising from the netting schemes.

Appendix III Different Wholesale Settlement Systems Mitigate Different Risks

Although netting arrangements generally reduce the need for central bank
funds, they also expose the participants to credit risks as they implicitly
extend large volumes of payment-related intraday credit to one another. This
credit represents the willingness of participants to accept or send payment
messages on the assumption that the sender will cover any net debit
obligations at settlement. The settlement of payments, by the delivery of
reserves at periodic, usually daily, intervals is therefore an important
test of the solvency and liquidity of the participants. In recent years,
central banks in countries using net settlement rules have taken steps to
reduce credit risks in these systems as part of overall programs to reduce
systemic risks.

Appendix IV

Comments from the Federal Reserve System

GAO's Mission The General Accounting Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve the performance and accountability of
the federal government for the American people. GAO examines the use of
public funds; evaluates federal programs and policies; and provides
analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO's commitment to good
government is reflected in its core values of accountability, integrity, and
reliability.

Obtaining Copies of GAO Reports and Testimony

The fastest and easiest way to obtain copies of GAO documents is through the
Internet. GAO's Web site (www.gao.gov) contains abstracts and full-text
files of current reports and testimony and an expanding archive of older
products. The Web site features a search engine to help you locate documents
using key words and phrases. You can print these documents in their
entirety, including charts and other graphics.

Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its Web
site daily. The list contains links to the full-text document files. To have
GAO E-mail this list to you every afternoon, go to www.gao.gov and select
"Subscribe to daily e-mail alert for newly released products" under the GAO
Reports heading.

Order by Mail or Phone The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out to
the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:

U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C.
20548

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

Visit GAO's Document GAO Building

Room 1100, 700 4th Street, NW (corner of 4th and G Streets, NW)Distribution
Center Washington, D.C. 20013

To Report Fraud, Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm,Waste, and Abuse in E-mail:
[email protected], orFederal Programs 1-800-424-5454 or (202) 512-7470
(automated answering system).

Public Affairs Jeff Nelligan, Managing Director, [email protected] (202)
512-4800 U.S. General Accounting Office, 441 G. Street NW, Room 7149,
Washington, D.C. 20548

Presorted Standard
Postage & Fees Paid
GAO
Permit No. GI00

United States
General Accounting Office
Washington, D.C. 20548-0001

Official Business
Penalty for Private Use $300

Address Correction Requested
*** End of document. ***