DOCSLIB.ORG

CHAPTER 7 TARGET2, the Eurosystem's RTGS System

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
CHAPTER 7 TARGET2, the Eurosystem's RTGS System CHAPTER 7 TARGET2, the Eurosystem’s RTGS system Updated on 17 December 2018 CHAPter 7 TARGET2, THE EUROSYStem’s RTGS SYSTEM mong the RTGS systems in use across building on the RTGS systems already in use the world’s major monetary areas, in participating countries, using the SWIFT A the euro area’s TARGET2 system network to connect them to each other. provides a good example of the key features described in the previous chapter. The national RTGS systems retained their specific features for processing domestic TARGET2 is the real‑time gross settlement payments in euro, but also had to incorporate system owned and operated by the a minimum set of harmonised functionalities Eurosystem. Implemented in 2007‑2008, relating to access conditions, opening hours, it is the second generation of TARGET cross‑border transaction pricing, intraday (Trans‑European Automated Real‑time credit and security. Gross‑settlement Express Transfer system), a system launched in 1999 alongside the TARGET was mainly intended to process single currency and designed to settle large‑value payments in euro, in particular large‑value payments in euro using operations connected with the euro area’s central bank money. common monetary policy, and to provide final settlement in central bank money of the The central banks participating in net balances of euro transactions conducted TARGET2 are, in principle, those of the in ancillary systems. countries that adopted the euro as their currency. However, the central banks of After going live on 4 January 1999, the other European Union Member States can first‑generation TARGET facilitated the also participate so that users of their national implementation of the ECB’s monetary RTGS systems can settle euro transactions policy and the development of a single in TARGET2 (these central banks are then money market, while growth in cross‑border said to be “connected”). transactions spurred integration between euro area financial markets. At the end of 2017, alongside the European Central Bank (ECB), 24 national central Thanks to the system’s reliability and the banks (NCBs) were participants in fact that no minimum amount was set for TARGET2: the 19 NCBs of the euro area, payments processed, TARGET rapidly came plus 5 “connected” NCBs.1 to be used for other types of transaction, such as urgent commercial payments. 1. Origin and governance However, this configuration soon proved of TARGET2 to have limitations for banks and central banks. The large cross‑border banking 1.1. Origin groups were pressing for standardised services and the system was growing The Eurosystem has had a technically increasingly cumbersome – operationally centralised but legally decentralised RTGS and financially – as the NCBs of new system since 2007. EU Member States were connected to 1 In 2017, the members it. The Eurosystem therefore launched of the euro area were: Germany, Austria, 1.1.1. TARGET (1999‑2007) a deliberation on the second generation Belgium, Cyprus, (TARGET2). At the end of 2002, the Spain, Estonia, Finland, France, Greece, Ireland, The implementation schedule set for the Governing Council of the ECB adopted a Italy, Latvia, Lithuania, single currency in the mid‑1990s meant that series of guidelines with the aim of better Luxembourg, Malta, there was no time to develop a shared RTGS meeting users’ needs by harmonising the Netherlands, Portugal, Slovakia and system for euro transactions from scratch, the services offered, while allowing the Slovenia. The countries since it was imperative for a system to business relationships between national with connected NCBs were Bulgaria, be operational by the start of 1999. It was central banks and their participating banks Croatia, Denmark, therefore decided to develop TARGET by to remain on a decentralised basis. It also Poland and Romania. 98 – Payments and market infrastructures in the digital era TARGET2, THE EUROSYStem’s RTGS SYSTEM CHAPter 7 From TARGET to TARGET2 SWIFT FIN Y-Copy Bank A Bank B SWIFT Suède SWIFT Interlinking SSP CBs Ancillary Systems Source: ECB – https://www.ecb.europa.eu/paym/t2/target/html/index.en.html Note: The central banks concerned migrated to the system in three phases from November 2007 to May 2008: Germany, Austria, Cyprus, Latvia, Lithuania, Luxembourg, Malta and Slovenia (Phase 1); Belgium, Spain, Finland, France, Ireland, the Netherlands and Portugal (Phase 2); Denmark, Estonia, Greece, Italy, Poland and the ECB (Phase 3). launched a public consultation, in response The system’s developers chose to: to which Europe’s banks expressed their support for the guidelines adopted by • impose no upper or lower limit on the the Eurosystem, while stressing that the value of payments; harmonisation of services would have to go hand in hand with a consolidation of • standardise the rules for submitting the system’s technical infrastructure on a and processing payment orders via single platform. the platform, be it for domestic or cross‑border transactions; These principles were documented in the reference legal framework • harmonise the services provided in established by the ECB Guideline on participating countries; TARGET2 published in 2007.2 • offer liquidity management optimisation 1.1.2. TARGET2 services for participants; Technically, TARGET2 is a single shared • simplify the regulations applicable to 2 The legal texts on TARGET2 can be settlement platform. ancillary systems (see Section 3 below); found on the ECB’s website http://www. ecb.europa.eu/ecb/ Commonly referred to as the SSP (Single • adopt a single pricing structure for services legal/1003/1349/html/ Shared Platform), TARGET2 is accessible in provided, aiming to recover the system’s index.en.html two ways: via the network service provider costs while factoring in a “public good 3 National central banks SWIFT or via the Internet.3 The platform has factor” relating to the positive externalities have a third access route, based on a a modular structure, in which each module generated by TARGET2 (see Chapter 19, proprietary network for is dedicated to a specific activity. on the economics of payment systems); contingency purposes. Payments and market infrastructures in the digital era – 99 CHAPter 7 TARGET2, THE EUROSYStem’s RTGS SYSTEM • harmonise communication channels 1.2.1. The decision‑making body and procedures. The decision‑making body is the Governing 1.1.3. Legal framework Council of the ECB, which determines TARGET2’s strategy and broad operating Legally, TARGET2 relies on a number principles. It takes decisions on the basis of of national payment systems that are proposals made by two Eurosystem bodies, operated independently but satisfy a set the Market Infrastructure Board (MIB) and of harmonised conditions. the Market Infrastructures and Payments Committee (MIPC), which address While, technically speaking, TARGET2 is a operational and strategic development single payment platform, in legal terms it issues, respectively. remains a decentralised structure because it comprises a number of interconnected 1.2.2. Steering bodies national RTGS systems. The steering bodies are the central banks Each national RTGS system is operated of the Eurosystem (the ECB and euro area by the national central bank (NCB), NCBs), which own TARGET2. They put which holds the accounts of banks and harmonised conditions in place for the financial institutions in accordance with opening and functioning of accounts and the decentralisation principle underpinning contribute to the system’s development. the implementation of the Eurosystem’s common monetary policy. The French The various NCBs and the ECB coordinate component system of TARGET2 (TARGET2‑ their work within the MIB and MIPC referred Banque de France) is therefore operated by to above, as well as within the Working the Banque de France. Group on TARGET2 for technical aspects. 4 Entitled “Agreement on TARGET2”, this The various component systems within NCBs provide the sole point of contact (the agreement must be the Eurosystem must, however, satisfy a national service desk) for participants in their updated whenever a change in the TARGET2 number of harmonised conditions for the national communities. This decentralised Guidelines affect opening and functioning of accounts, as structure is used for signing account its terms. set out in the Guideline on TARGET2. These conditions form the basis of the agreements signed between each central bank and its participants when the latter open an account in a TARGET2 component system. Figure Non-euro central bank’ Governors’ ECB decision With respect to “connected” NCBs, governors/ Forum making bodies bodies boards these banks sign an agreement with Central bank decision-making the Eurosystem’s NCBs,4 whereby they Non-euro Market Currencies Infrastructure CSD Steering Board undertake to fulfil the harmonised conditions, level Steering Group Group (CSG) bodies except for those relating to euro area Steering (NECSG) T2S matters common monetary policy and intraday credit. National user Ami-Pay Ami-SeCo National user Group (NUG) Group (NUG) bodies Market Pay SeCo advisory 1.2. Governance of TARGET2 Groups Technical T2S Operations T2S Project T2S Change TARGET2 is included in the Eurosystem’s Working Group Managers Group Managers Group Review Group on TARGET2 governance structure for its market (OMG) (PMG) (CRG) Reporting infrastructures, i.e. TARGET2 and T2S. Escalation The chart below shows how the various Technical Groups decision‑making bodies are positioned in Source: ECB. the governance structure for TARGET2. 100 – Payments and market infrastructures in the digital era TARGET2, THE EUROSYStem’s RTGS SYSTEM CHAPter 7 Box 1: TARGET2 balances TARGET2 balances1 are the net positions resulting from cross‑border payments between euro area countries processed via the TARGET2 decentralised payment system.2 When payments are made between banks holding accounts at different NCBs, the ECB acts as the counterparty to each NCB’s position and a multilateral net balance is calculated. These multilateral net balances are booked at the end of each business day in the respective NCBs’ accounts at the ECB, in order to account for cross‑border flows of central bank money.
Load more

Recommended publications
  • Disclosure Report TARGET2 Summary of the Self-Assessment Against the Principles for Financial Market Infrastructures
    Disclosure Report TARGET2 Summary of the self-assessment against the principles for financial market infrastructures May 2018 1 Executive summary 2 2 Summary of major changes since the last update of the disclosure 3 3 General background information on TARGET2 3 3.1 General description of TARGET2 and the markets it serves 3 3.2 General organisation of TARGET2 6 3.3 Legal and regulatory framework 6 3.4 System design and operations 6 4 Principle-by-principle summary narrative disclosure 7 Principle 1 Legal basis 7 Principle 2 Governance 8 Principle 3 Framework for the comprehensive management of risks 9 Principle 4 Credit risk 10 Principle 5 Collateral 10 Principle 7 Liquidity risk 11 Principle 8 Settlement finality 12 Principle 9 Money settlements 13 Principle 12 Exchange-of-value settlement systems 13 Principle 13 Participant-default rules and procedures 13 Principle 15 General business risk 14 Principle 16 Custody and investment risks 15 Principle 17 Operational risk 15 Principle 18 Access and participation requirements 16 Principle 19 Tiered participation arrangements 17 Principle 21 Efficiency and effectiveness 18 Principle 22 Communication procedures and standards 19 Principle 23 Disclosure of rules, key procedures, and market data 20 5 List of publicly available resources 22 Disclosure Report TARGET2 Summary of the self-assessment against the principles for financial market infrastructures 1 1 Executive summary TARGET2 is the real-time gross settlement (RTGS) system operated by the Eurosystem. TARGET2 settles euro-denominated payments on an individual basis, in real time and in central bank money with immediate finality. The system connects around 1,000 direct participants from EEA countries and around 52,000 addressable banks1 worldwide.
    [Show full text]
  • TARGET2 Balances in the Eurosystem
    Deutsche Bundesbank Annual Report 2011 48 TARGET2 balances in the Eurosystem The TARGET2 balances that have arisen at timately, the TARGET2 surpluses and defi cits some Eurosystem national central banks result from disequilibria in the balance of (NCBs) since the onset of the fi nancial crisis payments of several euro-area countries. have sparked a broad public debate. The This may entail current account defi cits or discussion has mainly focused on the causes capital exports by the private sector, which of these balances and the risks associated are then refl ected in liquidity outfl ows from with them. these countries. TARGET2 is a payment system that enables The chart on page 49 gives an overview of the speedy and fi nal settlement of national the level of TARGET2 claims and liabilities at and cross-border payments in central bank the end of 2009, 2010 and 2011. Alongside money.1 An average of around 350,000 Germany (€463 billion on 31 December payments with a value of just under €2½ 2011), the Netherlands, Luxembourg and trillion are processed using TARGET2 each Finland all showed net claims in the most working day,2 a fi gure which is broadly recent balance sheet. These claims in- equivalent to the size of Germany’s GDP. creased strongly in the course of 2011, par- These payment transactions can take a ticularly in the second half of the year as wide variety of forms, such as payment for the fi nancial and sovereign debt crisis grew a goods delivery, the purchase or sale of a more acute.
    [Show full text]
  • TARGET Annual Report 2017
    TARGET Annual Report 2017 May 2018 Contents Introduction 3 TARGET2 activity in 2017 6 1 Evolution of TARGET2 traffic 6 1.1 TARGET2 turnover 6 Box 1 TARGET2 celebrates a decade in operation 10 1.2 Volume of transactions in TARGET2 12 Box 2 Traffic evolution in TARGET2 13 1.3 Interactions between TARGET2 and T2S 17 1.4 Comparison with EURO1 22 1.5 Value of TARGET2 payments 22 Box 3 TARGET2 liquidity and its usage 25 1.6 Night-time settlement in TARGET2 26 1.7 Payment types in TARGET2 27 1.8 The use of prioritisation 28 1.9 Non-settled payments 29 1.10 Share of inter-Member State traffic 30 Box 4 TARGET2 cross-border activities 32 1.11 Tiering in TARGET2 34 1.12 Money market transactions in TARGET2 36 1.13 Shares of national banking communities 38 1.14 Pattern of intraday flows 39 2 TARGET2 service level and availability 39 2.1 Technical availability 41 2.2 Incidents in TARGET2 41 TARGET Annual Report 2017 1 3 TARGET2 participants 42 3.1 RTGS accounts 42 3.2 Participation types 44 3.3 Ancillary systems 45 Box 5 TARGET2-T2S consolidation 46 4 TARGET2 financial performance 48 4.1 Cost recovery objectives 48 4.2 Financial performance of TARGET2 in 2017 50 4.3 Analysis of the revenues collected in 2017 51 5 TARGET2 risk management and oversight activities 52 5.1 TARGET2 risk management 52 Box 6 Cyber and end-point security 52 5.2 Oversight activities 54 6 System evolution 54 Box 7 TARGET2 adaptations to TIPS 56 Additional data 57 TARGET Annual Report 2017 2 Introduction Market infrastructures constitute one of the three core components of the financial system, together with markets and institutions.
    [Show full text]
  • TARGET2 Imbalances and the ECB As Lender of Last Resort
    Int. J. Financial Stud. 2015, 3, 482-509; doi:10.3390/ijfs3040482 OPEN ACCESS International Journal of Financial Studies ISSN 2227-7072 www.mdpi.com/journal/ijfs Article TARGET2 Imbalances and the ECB as Lender of Last Resort Francesco Purificato *,† and Caterina Astarita † Department of Law, University of Naples Federico II, via Mezzocannone 16, I-80134 Naples, Italy; E-Mail: [email protected] † These authors contributed equally to this work. * Author to whom correspondence should be addressed; E-Mail: [email protected]; Tel.: +39-81-253-7447. Academic Editors: Marida Bertocchi and Rita L. D’Ecclesia Received: 28 June 2015 / Accepted: 10 October 2015 / Published: 23 October 2015 Abstract: This paper analyses the issue of the dynamics of the TARGET2 system balances during the sovereign debt crisis, when some countries registered a decisive inflow of the central bank liquidity and others showed an outflow. The dynamics in the TARGET2 are here explained as being due to a fall in the level of confidence in the capacity of the Economic and Monetary Union to survive, rather than to disparities in the level of competitiveness among countries of the Eurozone. This crisis of confidence has to be considered as the consequence of the implicit refusal of the European institutions to create a mechanism working as lender of last resort for the euro area member States; indeed, only when the ECB took this responsibility by launching the Outright Monetary Transactions clear signs of improvement were observed in the sovereign debt crisis. Keywords: payment system; monetary policy; fiscal policy; financial crisis JEL Classification: E42, E52, E58, E62, F32, F34, F36 1.
    [Show full text]
  • The European Crisis and the Accumulation of TARGET2 Imbalances
    The European crisis and the accumulation of TARGET2 imbalances Beniamino Moro1 Abstract In the context of the European financial crisis, TARGET2 payment system of the European Monetary Union (EMU) countries became crucial, reflecting funding stress in the banking systems of most crisis-hit countries. This paper analyses the role displayed by TARGET2 in the EMU. Until now, the ECB has assumed a crucial role to overcome the European financial crisis. Anyway, to promote a full economic recovery in Europe, it is necessary a strong interconnection between single countries fiscal policies and the ECB’s autonomous monetary policy. In this regard, we conclude that, in the medium term, a successful crisis resolution requires more political integration of EMU countries, which should include a fiscal union and a banking union. However, in the short run, a prompt recovery is essential to get out of the trouble, and this requires that surplus countries (specially Germany) expand aggregate demand and let domestic wages and the ensuing internal inflation rate increase. Keywords European financial crisis, sovereign debt crisis, banking crisis, TARGET2, EMU. 1 Introduction How was it that Europe came to the recent Great Crisis? To answer the question, in this paper some stylized facts are exposed and extensively discussed. First, an important element that much contributed to the crisis was the mispricing of risk by capital markets and an ensuing misallocation of capital in the decade before the outbreak of the crisis. This had the effect of giving wrong incentives to policymakers. In fact, during the boom years, when financial markets were blind to the sovereign risks, no incentives were given to policy makers to reduce their debts, as the latter were priced so favorably.
    [Show full text]
  • Eurozone Architecture and Target2: Risk-Sharing and the Common-Pool Problem
    Eurozone Architecture and Target2: Risk-sharing and the Common-pool Problem Aaron Tornell UCLA March 2018 (First version: September 2012) Abstract The introduction of the Euro has brought about an implicit risk-sharing mechanism across members of the Eurozone, which works via the Target2 system: when a country is hit by a negative shock, it automatically receives a transfer via the ECB. On the one hand, this risk-sharing mechanism has proved to be welfare-improving, as it smooths the effects of the shock on consumption and output. On the other hand, it has led to lending booms, excessive national debt accumulation and capital flight. In this paper, we present some stylized facts that illustrate these two effects and develop a dynamic political-economy model, in which both effects are part of an internally consistent mechanism. In this model, we analyze the interaction of systemic bailout guarantees with two common-pool problems: an inter-country and a within-country common-pool problem. In equilibrium, risk-premia on interest rates fall–which is good for invest- ment and growth–but also a voracity effect arises, under which a greater ability of national central banks to support distressed banks during crises leads to a dynamic path, which features unsustainable national debt over the long-run, coexisting with private capital flight. Possibly, introducing an explicit risk-sharing mechanism in com- bination with other reforms may keep the good aspects of the Eurozone architecture, while ameliorating these common-pool problems. 1 1 Introduction The creation of the Eurosystem of national central banks and the introduction of the Euro have brought about an implicit risk-sharing mechanism across members of the currency union: when a country is hit by a negative shock—either real or to expectations—the currency union makes transfers to the country to smooth out the effects of the shock on consumption and output.
    [Show full text]
  • ISO 20022 in T2S – a New Chapter in Collaboration
    Case study ISO 20022 in T2S – A new chapter in collaboration “T2S is a new generation of market infrastructure that will completely reshape securities settlement operations across Europe” Marc Bayle, ISO 20022 RMG member and T2S Programme Manager at the ECB TARGET2-Securities (T2S) SWIFT Standards Consulting Drivers is a European initiative to Services has been supporting As with TARGET2, the pan-European RTGS for euro payments, harmonised establish a single platform for the T2S project since 2008, and efficient messaging is crucial for the the settlement of securities. It leveraging its many years smooth operation of the T2S system is coordinated by the European of expertise and established and its attractiveness to potential users, Central Bank (ECB), and four best practice to support the who today use a variety of structures to central banks (4CB: Banco de implementation of ISO 20022. coordinate securities settlement in and across European markets. Therefore, a España, Banque de France, Most recently it has focused on decision was taken early in the project Banca d’Italia and Deutsche two distinct roles: supporting that messages for use with T2S would be Bundesbank) are currently Deutsche Bundesbank in the ISO 20022. developing the service and management of the messaging “T2S is a new generation of market will operate it. Once it goes specifications and registration infrastructure that will completely reshape live in 2014, T2S will provide aspects of the T2S project; securities settlement operations across Europe,” says Marc Bayle, ISO 20022 harmonised delivery-versus- and supporting the 4CB in the RMG member and T2S Programme payment (DvP) settlement in technical aspects of developing Manager at the ECB.
    [Show full text]
  • T2-T2S Consolidation
    T2-T2S Consolidation The T2-T2S consolidation project is a European infrastructure project driven by the European Central Bank (ECB) with a planned go-live in November 2022. The aim of the T2-T2S consolidation project is to consolidate and optimize the provision of the TARGET2 (T2) and TARGET2-Securities (T2S) services and to address the increasing demand for having an effective facility for the provision of liquidity to existing and future Eurosystem payment and settlement services. Simulation start: Dec 2021 Production start: Nov 2022 The ECB’s T2-T2S consolidation project aims for: • Technical consolidation of the Eurosystem market infrastructures, with a key objective to be compliant with the latest cyber resilience directives, thus ensuring protection against cyberattacks. • A consolidated and harmonized connectivity solution, creating a single gateway for Eurosystem market infrastructures (ESMIG – Eurosystem Single Market Infrastructure Gateway). • Functional convergence of the current Eurosystem’s settlement services (T2S, TARGET2 and TIPS) into a single platform, which will allow the sharing of common components (reference data, data warehousing, archiving, etc.). However, T2, T2S and TIPS will remain separate services. • Implement a new RTGS module to provide new potential features as well as opportunities to adapt, streamline and improve the existing services. • Expand the existing RTGS operating hours. • Introduction of ISO 20022-compliant messages for communication. A “big bang” approach will be used (i.e. after launch, ISO 15022 will no longer be supported). • Implementation of a central liquidity management (CLM) module. The primary aim of CLM is to offer a centralized mechanism for the steering, monitoring and management of liquidity capacity.
    [Show full text]
  • Financial Support for Italy Will Be Costless
    MONETARY RESEARCH John Whittaker 10 June 2020 Financial support for Italy will be costless Loans to Italy from other eurozone countries will not increase their risk exposure, irrespective of the method of financing. This is because loans will displace an equal amount of Italy’s Target2 debt, leaving unchanged the total claim of the eurozone creditors. Italy currently has Target2 debt of €513bn to other eurozone countries through its central bank. If Italy receives grants, this will amount to forgiveness of some of its Target2 debt, which will be no loss to the creditors because its Target2 debt is unlikely ever to be repaid at full value. © John Whittaker +44 (0) 7752 643946 [email protected] Department of Economics Lancaster University Management School Lancaster LA1 4YX www.lums.lancs.ac.uk Financial support for Italy Target2 balances Countries such as Italy are likely to receive some Target2 balances are debts between the national financial support from other European Union central banks (NCB) of the eurosystem and the governments to assist with recovery from the European Central Bank (ECB) and they are an coronavirus pandemic. Under the latest essential feature of monetary union. Unlimited ‘recovery plan’1 proposed by the European credit between the NCBs is necessary to ensure Commission and endorsed by France and that euros exchange at par in all eurozone Germany, the Commission will raise funds by countries. Target2 balances are the result of issuing long-dated debt on behalf of the EU, to accumulated net cross-border financial flows, be repaid from the EU budget from 2027 which may be payments for trade or they may be onwards.
    [Show full text]
  • Liquidity–Saving Mechanisms: Quantifying the Benefits in TARGET2
    Liquidity–Saving Mechanisms: Quantifying the Benefits in TARGET2 Martin Diehl – Uwe Schollmeyer 1 Abstract This paper quantifies the benefits of the liquidity-saving mechanisms (LSM) in TARGET2. It builds on two different models which were developed for the quantification of the benefits of LSM in an environment of fee-based liquidity provision, such as Fedwire, and for a collateral- based payment system. Calibrating with data from 2010 we conclude that considerable positive welfare effects of the implemented LSM in TARGET2 do indeed exist. Depending on the theoretical approach these welfare effects can reach the order of 170.000 to 300.000 Euro per day. However, the institutional setup for the liquidity provision for any specific RTGS has to be taken into account in any case. JEL classification: E42, E58, G21 1 Introduction The Eurosystem (the ECB and the national central banks of the Eurozone) operates the Trans-European Automated Real-Time Gross Express Transfer System (TARGET2) to ensure the efficient and sound clearing of large-value payments in 23 countries of the European Union. Indeed a smooth functioning of the payment system is a necessary precondition for the functioning of the transmission of the monetary policy and it constitutes the backbone of a resilient market infrastructure which is essential for financial stability. It is therefore obvious that the design of such a large-value payment system is thoroughly and constantly evaluated with regard to both reliability and efficiency. TARGET2 builds on the user requirements and on the experiences of its predecessor-RTGS of the three providing central banks (Banca d’Italia, Banque de France and Bundesbank).
    [Show full text]
  • TARGET2 and the European Sovereign Debt Crisis∗ Preliminary Version
    TARGET2 and the European Sovereign Debt Crisis∗ Preliminary Version Ulrich Bindseily Philipp Johann K¨onigz February 15, 2012 Abstract The TARGET2 (T2) positions on the balance sheets of euro area national central banks (NCBs) have increased unprecedentedly since the beginning of the financial crisis. Currently only four euro area NCBs record T2 claims, while the remaining NCBs are T2 debtors. During the last twelve months, these developments were accompanied by a large public debate. The present article adds to the bulk of existing literature on this topic as it explains the origins and development of T2 positions by means of a stylized framework of financial accounts. It is stressed throughout the article that T2 positions constitute merely a reflex of underlying adverse developments in financial markets and of the elasticity of Eurosystem lending. Furthermore, the financial risks behind T2 positions, and the relationship to the monetary base, the euro area's liquidity deficit and intra-euro-area current account deficits are discussed in greater detail. Finally, we discuss recent proposals to limit T2 positions and we provide several superior measures of how to re-balance T2 positions. JEL Key words: TARGET2, central bank balance sheet, liquidity deficit, financial crisis JEL Codes: E58, F33, F55 1 Introduction The TARGET2 (T2) positions on the balance sheets of several euro-area national central banks increased considerably since the beginning of the European sovereign debt crisis in 2009. This unprecedented increase attracts more and more the attention of professional economists and the public media. Yet, despite the large amount of available information on this issue, neither has a ∗The views expressed in this article are those of the authors and do not reflect official views of the European Central Bank.
    [Show full text]
  • TARGET2 – a Single Europe for Individual Payments Department Payments and Settlement Systems
    TARGET2 – a single Europe for individual payments Department Payments and Settlement Systems © Martin Barraud © gettyimages/George Doyle TARGET2 Page 2 TARGET2 – single technical platform for processing urgent euro payments TARGET2 is the real-time gross settlement (RTGS) system On 19 May 2008, TARGET was replaced by TARGET2 owned and operated by the Eurosystem for the processing after a six-month migration period. Currently, the central of urgent euro payments. The payments are processed banks of the euro area as well as the European Central on a continuous basis and settled with immediate fina- Bank and the central banks of Bulgaria, Croatia, Denmark, lity. TARGET stands for Trans-European Automated Poland and Romania are connected to TARGET2. Real-time Gross Settlement Express Transfer System and TARGET2 is Europe’s most important payment system, the 2 for the second generation of the system. processing a daily average of around 340,000 pay- ments worth roughly €1.7 trillion. About half of the Compared to its forerunner system TARGET, which was payments in terms of volume and over one-third in an association of 17 different components, TARGET2 is terms of value are submitted via the Bundesbank. operated on a single technical platform (known as the single shared platform, SSP). TARGET2 has the following objectives: – Supporting the implementation of the Eurosystem‘s monetary policy and the functioning of the euro money market – Minimising systemic risk in the payments markets – Ensuring the efficient processing of cross-border payments in euro By meeting these objectives, TARGET2 makes a significant contribution of the integration and stability of the euro-area money market.
    [Show full text]