A newly approved clearing house meant to reduce settlement risk in foreign exchange transactions has appointed Larry V. Recknagel as president and chief executive officer.
The clearing house, Multinet International Bank, New York, is owned by eight banks including Chase Manhattan Corp. and First Chicago NBD Corp.
It is expected to begin processing transactions in the next few weeks. Regulatory approval had been sought for eight years; the Federal Reserve gave its go-ahead last month.
Mr. Recknagel was president of International Clearing Systems Inc., Wheaton, Ill. At Multinet he succeeded Alastair Mirrlees, who is staying on as a senior risk officer.
The company aims to give participating banks a network they can use to limit their exposure to so-called Herstatt risk. This kind of risk, named for a German bank that failed in 1974, refers to a situation in which a foreign exchange counterparty could fail to deliver payment in one currency after having received payment in another.
The settlement risk business has grown more crowded since Multinet first applied for a bank charter in New York in 1989.
A bank-run clearing house in London, called the Exchange Clearing House Ltd., or Echo, opened in 1995.
In addition, the Group of 20 industrialized nations has proposed a "continuous-link" settlement bank, also aimed at reducing settlement risk. Officials familiar with the Group of 20 said the organization is close to finishing a blueprint for the business.
The Multinet, Echo, and G-20 ventures are not likely to coexist over the long term, observers said.
"In order to get the risk reduction you need everyone using the same system," said a source close to the Group of 20 effort . "Players do not want to have to belong to multiple systems," said the source, who requested anonymity.
"I can't see there being multiple providers of multilateral foreign- exchange settlement services."
There are indications that the emerging groups are open to working with other foreign exchange clearing organizations.
For instance, Multinet has agreed to provide a set of comprehensive settlement services in conjunction with FX Net, a London- based bilateral netting service.
In addition Echo and Multinet have discussed the possibility of combining operations, observers said.
All of this points to a complicated future for Multinet. But executives at the company think they have tapped the right man to lead them.
"Larry Recknagel's long experience in international clearing, risk management, and bank systems make him the ideal leader for Multinet as we approach the takeoff point," said Garrett Glass, chairman of Multinet and senior vice president at First Chicago NBD Corp.
"He will ensure that bank-based multilateral currency netting becomes a reality."
Mr. Recknagel said, "The opportunity to help set the course for this new kind of bank is an exciting challenge."