Cornerstone for capital markets union Guest contribution published in the Börsen-Zeitung
The launch of TARGET2-Securities yesterday enabled the vision of a centralised pan-European platform for settling securities using central bank money to become reality, roughly seven years after the official launch of the project. The Eurosystem's single securities settlement service not only provides a significant pan-European market infrastructure, which will make a major contribution towards further financial market integration, but also constitutes a cornerstone for future developments regarding the European capital markets union.
T2S is a technical platform operated by the Eurosystem, combining the delivery of securities transactions and the financial settlement thereof. This means that the settlement of both domestic and cross-border transactions takes place via a single system using secure central bank money, thereby minimising settlement risk and thus making a key contribution to the efficiency and stability of the European financial markets. For us as a central bank, this is of crucial importance from a financial stability perspective.
For market participants, T2S means much more than lower settlement fees for cross-border transactions. The primary benefit of T2S is the scope it offers for optimising the management of liquidity and collateral. As a result of the integration of cash and securities accounts in T2S, banks will be able to group together their securities holdings to a greater extent, and at the same time also be able to pool the liquidity required for the settlement in a single cash account at the central bank. The liquidity and collateral buffer still required today for settlement in various national markets has been made obsolete by T2S. The service thus delivers considerable savings with respect to central bank liquidity and collateral, which have become far more significant in the wake of the financial crisis. Furthermore, netting effects across all T2S markets and the array of self-collateralisation options on offer for securities transactions further reduce liquidity and collateral needs. The previous time lags resulting from different time sequences in the settlement processes of the individual central securities depositories (CSDs) will likewise become a thing of the past, which will also make it much easier to mobilise collateral across borders. The freed-up collateral will be available, amongst other things, to cover previously unsecured risks in banking business. Studies that have been published on this topic highlight precisely these advantages of T2S and envisage substantial savings in terms of both liquidity and capital for banks.