How was TARGET2 developed and what is its function?
The TARGET2 system was developed between November 2007 and May 2008. It gradually replaced the TARGET system that was launched in 1999 with the start of European Monetary Union and links together the gross settlement systems of the EU member states and the European Central Bank. TARGET and the later TARGET2 serve the following purposes:
- execute safe, reliable and efficient interbank payments in the euro area,
- conduct an effective unified monetary policy in the euro area, and
- impart a strong impetus to financial and commercial integration among participant countries.
TARGET2 operates on a Single Shared Platform (SSP) developed by the Bank of Italy and the Deutsche Bundesbank (which are in charge of its day-to-day running) along with the Banque de France (designated collectively as the 3CB) for the benefit of the European financial systems. From a legal point of view, however, TARGET2 is a network of national systems (e.g. for Italy, the TARGET 2-Banca d’Italia system) in which the participants sign national contracts that are harmonized at European level and maintain business relationships at a decentralized level with their respective national central bank. This system addresses banks’ demand for harmonized and state-of-the-art liquidity management services, the challenges presented by the enlargement of the European Union and of the euro area, the quest for greater efficiency through the adoption of advanced technological solutions, and new concerns in the area of business continuity.
Who participates in TARGET2?
TARGET2 brings together the financial communities of the euro-area countries together with those of Bulgaria, Denmark, Poland and Romania. Approximately 1,000 commercial banks located in Europe hold a settlement account with their central bank. TARGET2 therefore settles the majority of euro-denominated large-value payments. Over 350,000 transactions, totalling almost €2 trillion, are settled every day.
