One of the key features of a well-functioning financial system is its capability of contributing to an allocation of financial resources that is conducive to economic growth. Financial markets can be said to be the more efficient the smoother this allocation is. Promoting sound competition and a level playing-field for all market participants are core regulatory principles in improving efficiency.
The Bank of Finland has various projects in hand for the analysis of financial market efficiency. The efficiency of institutions operating in the financial markets is examined eg from the viewpoint of productivity and/or cost-efficiency. Stable and efficiently functioning institutions help enhance financial market efficiency. Another area of analysis focuses on the effects that regulation has on efficiency.
Sound and reliable payment and settlement systems constitute the core of efficiency. System efficiency can be upgraded by making use of new technologies and smooth processes. In 2001 the Committee on Payment and Settlement Systems (CPSS) of the central banks of the Group of Ten Countries (G-10) issued ten Core Principles for Systemically Important Payment Systems. The principles lay the basis for oversight policies pursued by central banks. According to these principles, the system should provide a means for making payments which is practical for its users and efficient for the economy. Resources should be used efficiently, and particular consideration should be given to the implementation of the use of international standards to allow for straight-through processing of domestic as well as cross-border payments.
The standards for securities clearing and settlement systems, in turn, highlight the importance of efficiency in the context of European integration as well as at the domestic level. They also emphasise system interoperability. Interoperability may be achieved through standardisation of both technical aspects of the systems and their business practices.
The definition of efficiency is not unambiguous, however. The oversight standards highlight the aspect of efficiency that complements the security and operational reliability of the systems. However, reliability and efficiency may also be conflicting goals.