TARGET2: real-time gross settlement system

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What is TARGET2?

The adoption of the euro and the associated handling of the single monetary policy by the Eurosystem meant that a euro payments settlement system had to be developed that would facilitate the efficient circulation of liquidity within the euro area. Thus, the TARGET system (Trans-European Automated Real-Time Gross Settlement Express Transfer system) was created in 1999 by linking the existing national gross settlement systems through an interlinking network. It was based on the principle of 'minimal harmonization' (regarding the hours of operation, the granting of intraday liquidity and the fee schedules for cross-border payments).

The need to ensure the complete harmonization of services and their costs, together with that for greater flexibility to cope with the expansion of the European Union, led to the development of a single system, TARGET2, based on a Single Shared Platform (SSP). This new system was launched in November 2007 and, with groups of countries migrating from one system to the other in 'windows', fully replaced the first TARGET system by May 2008.

TARGET2 lays the groundwork for the proper functioning of the single currency and is one of the pillars of the euro area's financial integration process.

Objectives of TARGET2

The Eurosystem created TARGET2 to be used by participating intermediaries for the gross settlement in central bank money of large-value transactions,[1] such as monetary policy operations, interbank payments, operations on behalf of customers and  ancillary system transactions (customer payments systems, securities settlement systems, central counterparties and money markets). The Eurosystem gave Banca d'Italia, Deutsche Bundesbank and Banque de France (known as the '3CB') the task of developing the SSP.

Payments are settled in TARGET2 through the SSP on which participant register accounts held with their central banks, making it possible for payments to flow safely and efficiently across the euro area, thereby contributing to the stability of the euro.

Specifically, TARGET2:

  • enables the implementation of the Eurosystem's monetary policy and the operation of the euro money market;
  • improves the robustness of the financial system as a whole, helping to mitigate system risk,[2] thanks to the speed and certainty of settlement of large-value payments;

  • ensures the efficient processing of cross-border payments in euro.

How does TARGET2 work?

Payment orders are submitted to the platform for processing and are settled in real time, guaranteeing immediate finality of the transaction.[3] There is no upper or lower limit on their value.

In order to settle payments smoothly in TARGET2, system participants have access to 'unlimited intraday credit', that is liquidity provided by their own central bank in exchange for the pledge of collateral into the pool account. This credit must be repaid by the end of the business day.

TARGET2 allows efficient liquidity management - which is critical for processing payments - by offering participants a number of functions, such as: payment priorities, timed transactions, liquidity reservation facilities, bilateral and multilateral exposure limits (with respect to the single participant or to all the participants), optimization procedures, which make it possible to reduce liquidity needs  in settling payments.

Participants can transfer liquidity from TARGET2 to TARGET2-Securities to settle the euro 'leg' of securities transactions and to TIPS to settle instant payments.

Participants interact with the platform to send payment messages, system queries, and receipt of notifications and reports through the SWIFT network.  Banks that carry out only a limited number of payment system transactions may choose Internet-based access to the system.

TARGET2 is operational every day (except Saturdays and Sundays) from 7 a.m. to 6 p.m., Monday through Friday. The system is closed on the following days:

  • 1 January
  • Good Friday
  • Easter Monday
  • 1 May
  • 25 December
  • 26 December

From a legal point of view, the TARGET2 system is divided into distinct national components; each national central bank operates according to the principle of 'decentralization' and has administrative and working relationships with participants in the platform operating in their country.

In its role as service provider, Banca d'Italia is - together with the Bundesbank - the first point of contact for all participating national central banks (NCBs). It intervenes in the event of a malfunction, monitors compliance with the expected service levels and helps to maintain and develop the system as well as to manage the administrative, legal and security aspects. It also runs both the IT infrastructures that make the system function and those necessary to upgrade it.

In its role as support and assistance provider for the national financial community, Banca d'Italia is the only contact at technical and administrative level for Italian financial intermediaries, monitoring the settlement of payments and intervening in the event of malfunctions affecting the system or individual participants.

The platform is periodically upgraded with new releases, designed to update the services provided and to introduce new technical and business functions.

To ensure business continuity in the case of local and regional disasters, the TARGET2 infrastructure is distributed across four operating sites in two separate regions.

The expected service levels and the legal relationships between the Eurosystem and the 3CB, given their role as platform service providers, are regulated by contract: 95 per cent of transactions must be processed in less than five minutes. In 2019, TARGET2 settled nearly every payment in less than a minute and all within five minutes.

Participation in TARGET2 and volumes processed

All of the rules for TARGET2 are set out in the TARGET2 Guideline, including access requirements. Participants choose the configuration that best suits their operations, based on different technical manners. It is also possible to access TARGET2 directly through bilateral arrangements with direct participants. More than 1,000 financial institutions participate in TARGET2, on their own behalf or on behalf of their customers. Including branches, more than 52,000 banks throughout the world and their customers can be reached through TARGET2.

Around 120 banks and ancillary systems directly and indirectly participate in Italy's component (TARGET2-Banca d'Italia).

To date, 19 euro-area central banks (including the European Central Bank), as well as the central banks of Bulgaria, Denmark, Poland, Romania and Croatia, participate in TARGET2. Finally, institutions of non-euro area countries (so-called 'CB customers') also participate in TARGET2 to settle transactions in euro using the correspondent banking services offered by the Eurosystem NCBs.

The TARGET2 'market share' is around 89 per cent of total euro-denominated large-value payment systems (LVPS). In less than seven days, TARGET2 processes payments almost equal to the GDP for the entire euro area, which makes it one of the largest payment systems in the world. In 2019, the average number of payments settled per day in TARGET2 was around 344,000; the average daily total value was around €1,700 billion.

[1] 'Gross settlement' in central bank money refers to the settlement of each transaction one by one, without netting, in the accounts held with their respective central banks.

[2] The gross settlement of TARGET2 transactions between two counterparties  makes it possible to mitigate the systemic risk that the failure of one participant could set off a chain reaction affecting the others, thereby threatening the stability of the entire financial market (the 'domino effect').

[3] Under the Settlement Finality Directive (SFD 98/26/EC), the settlement of a monetary or financial transaction in a designated system is deemed to be final and irrevocable even when the participant has become insolvent and insolvency proceedings have been opened against it.


Markets and Payment Systems Directorate General
Payment Systems Directorate
Wholesale Payment Systems Division

Via Pastrengo 14 - 00185 Roma

Tel: +39 06 4792 5700

Markets and Payment Systems Directorate General
Payment Systems Directorate
Eurosystem Market Infrastructures Division
Largo Guido Carli, 1 - 00044 Frascati

Tel: +39 06 4792 6000