TARGET2 account balance
TARGET2 is the Real-Time Gross Settlement (RTGS) payment system owned and operated by the Eurosystem, where payments in euro are settled in central bank money. TARGET2 participants are the national central banks (NCBs) of the Member States of the euro area, the European Central Bank (ECB) and the national central banks of Bulgaria, Denmark, Poland, Romania and Croatia. According to a decentralised design, each NCB operates the respective national component of TARGET2. TARGET2-GR is the Greek component of TARGET2 and is operated by the Bank of Greece (BoG).
TARGET2-GR participants are credit institutions (CIs) operating in Greece, DIAS Interbanking Systems SA (DIAS), the Athens Clearing Office (ACO), the Hellenic Central Securities Depository (ATHEXCSD), the Athens Exchange Clearing House (ATHEXClear) and the BoG.
TARGET2 processes payments across the entire range of transactions in euro within the Eurosystem, in particular, ΤΑRGET2 settles:
TARGET2 settles the following payment orders:
- payments related to the Monetary policy operations of the Eurosystem;
- the euro-denominated cash leg of transactions in securities and foreign exchange operations;
- payments relating to the operations of other large-value net settlement payment systems and retail payment systems;
- payments between ΝCBs and/or CIs participating in TARGET2.
Each TARGET2 participant holds with an NCB, at least one current account, through which it sends or receives payments in central bank money. Payments through TARGET2 are classified as “domestic” when carried out between two participants that hold their respective current accounts within the same NCB, or as “cross-border” payments when carried out between two participants that hold their respective current accounts with different NCBs, i.e. participate in different TARGET2 components. When a participant makes a cross-border payment through TARGET2, the current account held by that participant with an NCB is debited, and the counterparty’s current account with another NCB is credited. This payment gives rise to an equivalent liability of the former NCB (the payer’s NCB) vis-à-vis the latter NCB (the payee’s NCB).
- credit transfers between participants on their own behalf (e.g. interbank payments) or on behalf of their customers (customer payments). In particular, customer payments settled in the system are retail payments relating to purchases of goods, services or assets; debt repayment; extension of credit; fund transfers, etc.;
- net settlement orders from Ancillary Systems;
- direct debits, typically in the context of specific Eurosystem operations (standing facilities, refinancing operations, etc.), but also between participants following authorisation.
Therefore, cross-border payments through TARGET2 create, for the NCBs involved, bilateral balances (claims and corresponding liabilities) within the European System of Central Banks (ESCB). At the end of each TARGET2 business day, these balances are aggregated and netted by novation, i.e. ECB substitutes all participating NCBs, and their claims and liabilities become claims on and liabilities to the ECB, leaving each NCB with a single net bilateral position vis-à-vis the ECB only.
For this purpose, special dedicated accounts – the TARGET2 accounts – have been created for all central banks (including the ECB), which reflect their cumulative claims on/liabilities to the ESCB. Thus, on a daily basis, all NCBs show a final cumulative position (claim or liability) vis-à-vis the ESCB, which is accounted for in their balance sheets under “Net claims/liabilities arising from balances of TARGET2 accounts”.
It should be noted that, at the ESCB level, the sum of the balances of the NCBs’ TARGET2 accounts is by definition zero.
Example of cross-border payments and changes in the balance of the TARGET2 account:
In the example below, the following payments are carried out between CIΑ of Country1, and CIΒ and CIc of Country2:
At end-of-day, all payments are aggregated and netted out at the ESCB level:
- CIΑ makes a payment of €100 to CIΒ The current account of the CIΑ with NCB1 is debited and the current account of CIΒ with NCB2 is credited
- CIΒ makes a payment of €70 to CIΑ The current account held by CIΒ with NCB2 is debited and the current account held by CIΑ with NCB1 is credited
- CIc makes a payment of €50 to CIΑ The current account held by CIC with NCB2 is debited and the current account held by CIΑ with NCB1 is credited
- NCB1 has a TARGET claim of €20 vis-à-vis the ECB, as a result of the final net inflow of funds in the current account of CIΑ
- NCB2 has a TARGET liability of €20 vis-à-vis the ECB, as a result of the final net outflow of funds from the current accounts of CIΒ and CIc
The charts below show the evolution of the balance (in € billions) of the TARGET2-GR account of the BoG since January 2001, its maximum annual figures, as well as its more recent changes both on an annual and a monthly basis.
1. In the chart “Monthly evolution of the TARGET2-GR account balance”, the period January 2001 - April 2008 refers to TARGET and from May 2008 onwards to TARGET2.
2. The positive axis shows the balance of the TARGET2-GR account in absolute figures, representing liabilities towards the ESCB.
For the BoG, the liability item “Net liabilities arising from balances of TARGET2 accounts” reflects its position vis-à-vis the ECB. As it can be depicted in the chart, the liability of the BoG was increasing until the end of 2012, as domestic credit institutions were facing net outflows of funds coupled with impaired access to short-term funding markets. The improved funding conditions in the subsequent period are partly reflected in a reduced TARGET2-GR account balance, which, however, has returned to 2012 levels since end-2014.
Any economic interpretation of the evolution of the TARGET2 account balance warrants particular caution, given that TARGET2 allows for a number of options to large multi-country banking groups, in terms of connection mode and/or centralised liquidity management through a single current account. Moreover, the access of non-EEA credit institutions to the monetary policy instruments of the Eurosystem via subsidiaries in countries with TARGET2-participating NCBs significantly blurs the notion of cross-border flows of “national” funds. Consequently, the periodical changes in TARGET2 account balances can only provide indicative information, and certainly not a full picture of net cross-border financial flows between participating countries.
Payment and Settlement Systems Department
Funds Transfers and Infrastructure Study Section
341 Mesogion Ave., 152 31 Chalandri