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On Monday, TARGET2, the real-time gross settlement system for euro payments, successfully went live with over 171,000 payments, amounting to €833 billion. This is approximately 50% of the payments settlement business of the eight migrated countries - Germany, Austria, Luxemburg, Malta, Latvia, Lithuania, Slovenia and Cyprus.
TARGET2 moves towards an integrated European financial infrastructure and has been built with large scale operational resilience in mind. It was developed and is operated by a consortium of central banks - Banca d'Italia, Banque de France and the Deutsche Bundesbank - as a large-scale, European and “multi-cultural” project. When migration is complete in May 2008, TARGET2 will handle 1,000 direct participant banks and 60 ancillary systems across 21 European countries.
The objectives of TARGET2 are to provide a secure single technical platform with a single transaction price for domestic and cross-border payments. It will reduce the error rates resulting from multiple systems and, because central banks are acting as the managing organisation, there is no embedded credit risk.
Liquidity risk should also be reduced. Hans Georg Fabritius, Member of the Board at Deutsche Bundesbank, said “TARGET2 makes the liquidity management of banks much more efficient. Banks will be able to concentrate their European payment operations on one central bank account. Alternatively, they could also pool their liquidity held on central bank accounts in TARGET2. In TARGET1, the euro liquidity was spread across 17 different TARGET components. In TARGET2, there will be only one platform.”
This first migration comprising eight countries was made up of 259 direct participant banks, 2,925 indirect participants and 7 ancillary systems; the second country migration, 7 countries including France and Belgium, will be on 18th February; with the third window on the 19th May 2008.
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