closer to financial integration
Four years in the making, TARGET2, Europe’s new
real-time high-value euro payments settlements platform, went live
on 19 November in a launch hailed by Deutsche Bundesbank (German
central bank) board member Hans Georg Fabritius as a resounding
success. “The launch of TARGET2 is a historic step forward on the
way to an integrated financial infrastructure in Europe,” said
Fabritius at a press conference marking the launch.
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TARGET2 is the product of a decision taken in October 2002 by the
European Central Bank (ECB) to develop a single centralised
platform to replace the Trans-European Automated Real-time Gross
settlement Express Transfer system (TARGET1). Introduced in 1999,
TARGET1 links 15 decentralised national real-time gross settlement
systems and the ECB’s payment mechanism.
“We have transformed the decentralised network of payment systems
into a centralised payment system with a single technical
platform,” said Fabritius. “TARGET2 guarantees a harmonised level
of service for banks all over Europe, combined with one single
transaction price for domestic and cross- border payments.” He
added that the consolidation achieved by TARGET2 makes it possible
to significantly reduce central banks’ operating costs and will
also result in lower transaction fees on a European average.
Phased migration
The migration from TARGET1 to TARGET2 is being done in phases; the
first, on 19 November, involved the national central banks and
their user communities in Austria, Cyprus, Germany, Latvia,
Lithuania, Luxembourg, Malta and Slovenia. On the first day of
operation, more than 171,000 payments were settled via TARGET2. The
turnover volume amounted to €833 billion ($1.23 trillion), €726
billion of which was submitted by German participants, and
represented about one-half of the migrated countries’ TARGET1
settlements.
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By GlobalDataThe second phase of the switch from TARGET1 to TARGET2 is set for
18 February 2008 and will involve Belgium, Finland, France,
Ireland, the Netherlands, Portugal and Spain. The third and final
migration will be on 19 May 2008 and involve Denmark, Estonia,
Greece, Italy, Poland and the ECB.
At the end of the migration period, TARGET2 will serve the needs of
1,000 direct participants (banks) and about 60 ancillary systems
across 21 European countries. “Looking at the considerable rates of
growth, we expect that TARGET2 will go well beyond the 350,000
payments with a value of €2.4 trillion which are settled each day
in TARGET1,” said Fabritius. He noted that TARGET2 could also be
used by banks in European Union countries that have decided not to
join TARGET2, such as the UK.
“TARGET2 is one of the best individual payment systems in the
world,” continued Fabritius. “Together with the US Federal Reserve
Bank’s FEDWIRE system and the global foreign exchange settlement
system Continuous Linked Settlement, TARGET2 belongs to the biggest
payment systems worldwide.” He added that TARGET2 is also a “system
of systems” in that it is used for cash settlement purposes by
about 60 other systems such as securities settlement systems and
retail payment systems. “In this dimension, TARGET2 is unique in
the world,” he said.
Benefits
Fabritius went on to outline the benefits of TARGET2 compared with
TARGET1. In particular, he stressed, it makes the liquidity
management of banks much more efficient as they will be able to
concentrate their European payment operations on one central bank
account. “The great importance of an active liquidity management
system can also be seen in the fact that around 80 percent of all
payments in TARGET2 [on day one] were settled in a liquidity-saving
manner,” said Fabritius.
TARGET2 also provides banks with comprehensive online information
on a real-time basis and a wide array of options to actively manage
their payment flows, he continued. This, he said, is superior to
what European banks have experienced before. For example, with
TARGET2 Europe-wide transparency on payment queues shows all
pending incoming and outgoing payments of a bank. This, Fabritius
explained, gives banks the ability to monitor in a forward-looking
manner their liquidity position worth billions of euros.
TARGET2 falls under the authority of the Eurosystem, the monetary
authority comprising the central banks of European Union countries
whose currency is the euro. TARGET2 is operated on behalf of the
Eurosystem by the Deutsche Bundesbank, Banque de France (France’s
central bank) and Banca d’Italia (Italy’s central bank), which
jointly provide the single technical infrastructure, the Single
Shared Platform (SSP), explained Antonio Finocchiaro, a member of
Banca d’Italia’s governing board.
Finocchiaro explained that Deutsche Bundesbank and Banca d’Italia
are responsible for the operation of the SSP and Banque de France
for the customer-related services system. TARGET2’s operational
period is 21 hours per day and TARGET1’s is 11 hours.
Significant efforts have also been made to ensure business
continuity. “The SSP is aimed at fulfilling the business continuity
requirement through an unparalleled technical and organisational
structure,” said Finocchiaro.
To ensure continuity, the SSP operates from two regions in Europe,
each containing two different processing sites. Finocchiaro
explained that each region’s sites are remote from each other and
linked with synchronous data alignment. “The two sites are
completely equivalent in terms of processing and storage
capabilities, operating system and network interface,” said
Finocchiaro.
During normal operations, the SSP is active in one of the two sites
while the other is in standby mode. In the event of a disaster in
the operational site, the site in standby would be activated. This
switch, said Finocchiaro, would be made in no more than one hour.
Should both sites in a region be unavailable, one of the sites in
the second region would be activated. A maximum time limit of two
hours is set for a regional switch.
Though TARGET2 will realise only what Fabritius termed “its full
potential for Europe” once all 21 euro-currency countries have
migrated from TARGET1, initial customer satisfaction with TARGET2
is very high. “In particular, liquidity managers of TARGET2 banks
are experiencing just how convenient and useful the liquidity
management at European level is,” said Fabritius. “Some say that
TARGET2 is a quantum leap.”
