Search Icon Search Icon Menu Icon Menu Icon

26 October 2022, 11:52


Target2 is the leading Payment System for the settlement of large-value payments

What is Target2?

TARGET2 is the real-time gross settlement system (RTGS) introduced and still operated by the Eurosystem. It is the leading European platform for the settlement of large-value payments and is used by both central banks and commercial banks to settle payments in euro in real time.

To highlight the enormity with numbers: In 2021, there was a traffic of more than 96 Million Euro that covers an yearly increase of 8.67 %. More than 1,000 banks use TARGET2 to initiate transactions in euros either for themselves or for their customers. Taking into account branches and subsidiaries, more than 52,000 banks and all their customers worldwide can be reached via TARGET2.

Target2 Traffic


TARGET2 processes payments related to Eurosystem monetary policy operations as well as bank-to-bank and trade transactions. Central banks and commercial banks can submit payment orders in euros to TARGET2, where they are processed and settled in central bank money, i.e., money held in an account at a central bank.

Why is TARGET2 important?

To answer the question of relevance, we start with the importance of payment systems:

Modern economies rely on the safe and efficient flow of transactions. Payment systems ensure that money can flow in the economy. TARGET2 is a payment system that allows banks in the EU to transfer money among themselves in real time. This is known as real-time gross settlement (RTGS).

The ECB has a strong interest in ensuring that payment systems and other market infrastructures function smoothly and effectively to safeguard financial stability in the euro area. This makes TARGET2 an important building block of financial integration in the EU. It enables the free flow of money across borders and supports the implementation of the ECB’s single monetary policy.


Objectives of Target2

What are the Objectives of TARGET2?

According to the European Central Bank, Target2 has the following objectives:

  • Support the implementation of the Eurosystem’s monetary policy and the functioning of the euro money market
  • Minimise systemic risk in the payments market, i.e. the possibility of a single actor causing an entire market to collapse
  • Ensure the efficient processing of cross-border payments in euro

By meeting these objectives, TARGET2 enables payments to flow safely and efficiently across Europe and contributes to the stability of the euro.

Who are the Participants of Target2?

The Eurosystem consists of the European Central Bank (ECB) and the national central banks of the 19 European Union member states that are part of the euro area. Participation in TARGET2 is mandatory for new member states joining the euro area.

However, others may participate beyond that:

  • States that are not part of the euro area
  • National central banks of countries that have not yet adopted the euro
  • Central banks of countries outside the euro area (Croatia, Bulgaria, Denmark, Poland and Romania)

Other financial institutions can connect to TARGET2 through a participating central bank. In doing so, they can choose between different access options:

  • Direct participant: a financial institution established in the European Economic Area (EEA) that maintains an RTGS account in central bank money in TARGET2 and sends and receives payments on its own behalf or on behalf of its customers
  • Indirect Participation: an EEA-based financial institution that sends and receives payments in TARGET2 through a direct participant
  • Multi-addressee access: branches and subsidiaries of a direct participant in the EEA that are authorized to route payments through the direct participant’s account
  • Addressable BIC: a correspondent of a direct participant that has a Bank Identifier Code (BIC), regardless of the location of its branch office


Target2 Workflow

How does TARGET2 work?

Workflow of Target2

In simplified terms, Target2 works as follows:

  • Bank A and Bank B each have an account with a central bank.
  • Bank A wants to send a payment in euro to Bank B
  • Bank A submits the payment order to TARGET2
  • Bank A’s account is debited, Bank B’s account is credited with the money (payment processing)
  • TARGET2 transmits the payment information to Bank B

As described in simple terms above, payment orders are submitted to the Target2 platform for processing and are settled successively in central bank money with immediate finality. There is no upper or lower limit for their value.

Features for efficient liquidity management

The availability and cost of liquidity are two critical factors for the smooth processing of payments via Target2. TARGET2 has a number of features that enable efficient liquidity management. These include, e.g.:

  • Payment priorities: Participant has the option of managing the use of liquidity provided according to individual priorities from 0 (very urgent) to 2 (normal)
  • Liquidity reservation facilities: There is the possibility of setting liquidity “to the side” for the settlement of ancillary systems (“dedicated liquidity”)
  • Liquidity pooling and optimization procedures: It allows participants belonging to the same banking group to pool the liquidity held on RTGS accounts in one account group

Opening hours of Target2

TARGET2 is open for the processing of payments every working day from 07:00 to 18:00 CET. The system is closed on the following days:

  • 1 January (New Year’s Day)
  • Good Friday
  • Easter Monday
  • 1 May (Labour Day)
  • 25 December (Christmas Day)
  • 26 December


Target2 Balance

What are TARGET2 balances?

When money is sent between countries, each country produces a result of the ratio of what they sent away and what they received.

The net flow of money between two countries (i.e., the sum of the money received minus the sum of the money sent) is recorded in the balance sheets of the national central banks of the two countries involved. This occurs regardless of whether the transaction was initiated by a commercial bank or the central bank. The accumulation of these flows over time are the TARGET2 balances. The ECB also sends and receives money across borders to carry out its monetary policy, so it also has its own TARGET2 balance.

To avoid each euro area central bank having a separate balance with all other euro area central banks and the ECB, all bilateral balances are combined into a single balance with the ECB at the end of each day.

In short, if a country’s banks have sent more money in total through TARGET2 than they have received, then that country’s central bank will have a negative balance. If they have received more than they have sent, the central bank would have a positive balance. If outflows and inflows were exactly equal, that central bank’s TARGET2 balance would be zero.

The accumulation of money flows over time leads to TARGET2 balances.

What are the Advantages of TARGET2 for Participants?

  • Urgent and large-value payments, and domestic and cross-border payments are settled
  • Under the same conditions in central bank money with immediate finality
  • Participation can be in various forms, as direct, indirect, addressable or multi-addressee access
  • About 55,000 banks are accessible in the system around the world
  • Liquidity is available as intraday credit or overnight credit
  • Management of liquidity can be centralised for participants of single banking groups
  • There is a standard price list for all members
  • The price is the same for domestic and cross-border payments
  • Payment orders can be sent to the system five working days in advance
  • It takes five minutes to process payments

What does it mean for DX Customers?

DX Compliance will be enabling Target2 integration based on the European Union timelines for our customers.

Customers using the DX Compliance Transaction Monitoring Platform will be able to use the DX Compliance Target2 based on the European Union timelines.

Signing up gives you exclusive access to essential industry insights, don’t miss out!


UAE Recent AML Developments

An overview of recent AML developments in the UAE.

Get access


Money Laundering in the Art World

The introduction of 6AMLD regulations aims to reduce financial crimes.

Get access

27.07.2021    AML Compliance

PEP Screening and Sanctions – AML & CTF

Uncovering the PEP and Sanctions Lists and Global Regulation

Get access

Keep yourself up-to-date

By clicking the Button you confirming that you’re
agree with our following Terms and Conditions