What is TARGET2?

TARGET2 is the real-time gross settlement (RTGS) system owned and operated by the Eurosystem. Central banks and commercial banks can submit payment orders in euro to TARGET2, where they are processed and settled in central bank money, i.e. money held in an account with a central bank.

TARGET2 settles payments related to the Eurosystem’s monetary policy operations, as well as bank-to-bank and commercial transactions.

Every five days, TARGET2 processes a value close to the entire euro area GDP, which makes it one of the largest payment systems in the world. More than 1,000 banks use TARGET2 to initiate transactions in euro, either on their own behalf or on behalf of their customers. Taking into account branches and subsidiaries, more than 52,000 banks worldwide and all their customers can be reached via TARGET2.

In response to changing market demands, the Eurosystem has launched a review of its RTGS services. The objective is to consolidate the technical and functional aspects of TARGET2 and T2S, with the aim of improving efficiency and reducing operating costs.

Objectives of TARGET2

  • Support the implementation of the Eurosystem’s monetary policy and the functioning of the euro money market
  • Minimise systemic risk in the payments market, i.e. the possibility of a single actor causing an entire market to collapse
  • Ensure the efficient processing of cross-border payments in euro

By meeting these objectives, TARGET2 enables payments to flow safely and efficiently across Europe, and contributes to the stability of the euro.

How does TARGET2 work?

Payment orders are submitted to the platform for processing and are settled one by one on a continuous basis in central bank money, with immediate finality. There is no upper or lower limit for their value. TARGET2 is used by central banks and commercial banks for monetary policy transactions, interbank payments and commercial payments.

The availability and cost of liquidity are two crucial issues for the smooth processing of payments in RTGS systems. TARGET2 has a range of features allowing efficient liquidity management, including payment priorities, timed transactions, liquidity reservation facilities, limits, liquidity pooling and optimisation procedures.

TARGET2 is open for the processing of payments every working day from 07:00 to 18:00 CET. The system is closed on the following days:

  • 1 January (New Year's Day)
  • Good Friday
  • Easter Monday
  • 1 May (Labour Day)
  • 25 December (Christmas Day)
  • 26 December

Participation

TARGET2 is used to carry out monetary policy operations in the euro area. The central banks of EU Member States which have not yet adopted the euro also have the option to participate in TARGET2 and settle transactions in euro via the platform.

Other financial institutions can connect to TARGET2 via a participating central bank. They can choose from several different access options:

  • Direct participant: a financial institution established in the European Economic Area (EEA) that holds an RTGS account in central bank money in TARGET2, sends and receives payments on its own behalf or on behalf of its customers
  • Indirect participation: a financial institution established in the EEA that sends and receives payments via a direct participant in TARGET2
  • Multi-addressee access: branches and subsidiaries of a direct participant in the EEA that are authorised to channel payments through the account of the direct participant
  • Addressable BIC: a correspondent of a direct participant that holds a Bank Identifier Code (BIC), irrespective of its place of establishment

TARGET: the predecessor of TARGET2

TARGET2 replaced the first-generation RTGS system for the euro. TARGET commenced operations on 4 January 1999, a few days after the launch of the euro. The single currency needed a payment service to support monetary policy operations and to settle euro payments across national borders in the EU.

TARGET was built by linking together the different RTGS structures that already existed at national level as there was not sufficient time to develop a single system. However, this decentralised structure proved inefficient and costly in the long term. TARGET2 came into being as a redesign of TARGET and offers harmonised core services on a single technical platform. The Banque de France, Deutsche Bundesbank and Banca d'Italia – known as the 3CB – were given the tasks of developing the new platform and acting as a service provider on behalf of the Eurosystem. TARGET2 was launched on 19 November 2007 and fully replaced the first-generation TARGET by May 2008.