TARGET Services constitute the Eurosystem’s market infrastructure.
The suite of TARGET Services comprises:
- T2, consisting of Central Liquidity Management (CLM) for the settlement of monetary policy operations and the holding of minimum reserves and the real-time gross settlement (RTGS) system for large-value payments and ancillary system settlement;
- TARGET2-Securities (T2S) for securities settlement;
- TIPS (TARGET Instant Payment Settlement) for the settlement of instant payments;
- as of April 2024 the unified Eurosystem Collateral Management System (ECMS).
Before it was shut down in March 2023, the TARGET2 payment system, the predecessor of T2, processed an average of around 350,000 payments per day with a value of roughly €1.7 trillion. Per year, just under 90 million payments with a combined value of around €430 trillion were settled via TARGET2. These payment transactions can take a wide variety of forms, such as payment for a goods delivery, the purchase or sale of a security, the granting or repayment of a loan or the depositing of funds at a bank, to name but a few.
TARGET Services run on a shared platform, but legally speaking are made up of several component systems operated by the national central banks (NCBs) and the ECB.
In the case of a cross-border payment transaction made to settle a German export to France, for instance, both the Bundesbank and the Banque de France will therefore be involved. Such a transaction begins when the French importer’s commercial bank in France debits the purchase amount from the importer’s account and submits a credit transfer via a TARGET service, such as T2 (RTGS), to the German exporter’s commercial bank in Germany. The Banque de France then debits the RTGS account of the French commercial bank and the Bundesbank, in turn, credits the amount to the RTGS account of the German commercial bank. The transaction is concluded when the commercial bank credits the amount in question to the account it operates for the German exporter.
The intraday bookings of cross-border transactions in TARGET Services therefore lead to a change in the total amount of holdings on accounts held with a national central bank. For settlement purposes, a single liability to, or claim on, the ECB is automatically and directly created at the end of the day as part of a multilateral netting procedure.
Viewed in isolation, the transaction used as an example above leaves the Banque de France with a liability to the ECB and the Bundesbank with a claim on the ECB at the end of the business day. Such claims on, or liabilities to, the ECB are generally referred to as TARGET balances.
The TARGET balance in the Bundesbank’s balance sheet is therefore mainly attributable to cross-border transactions involving banks that participate in TARGET via the Bundesbank (some banks in the European Economic Area (EEA) also participate in TARGET via the Bundesbank if their own national central bank does not participate in TARGET).
The Bundesbank’s TARGET balance is affected by credit institutions’ operations on the money and capital markets, but also by transactions carried out by the non-banking sector, which makes payments via the banking system.