TARGET2 is a pan-European automated real-time gross settlement express transfer system that is owned and operated by the Eurosystem. The legal structure of TARGET2 consists of component systems that are operated by the national central banks. Eesti Pank operates the TARGET2-Eesti component system.
Payments submitted to TARGET2 are settled immediately they arrive in the system, one by one in central bank money through accounts opened at the central bank. TARGET2 is operated on a single technical platform and provides its services to all of its participants under the same conditions. The direct participants of TARGET2 are usually credit institutions but TARGET2 also allows indirect participation through direct participants.
The objectives of TARGET2
- To support the implementation of Eurosystem’s monetary policy and the functioning of the euro money market in general. All transactions arising from the Eurosystem’s open market operations and the use of the deposit facility and the marginal lending facility are settled in TARGET2, as are interbank money market transactions. TARGET2 is also used for managing the reserve requirements that credit institutions hold at central banks.
- To minimise the risk in the payments market. Claims and liabilities between credit institutions that have arisen in various other settlement systems are settled in TARGET2.
- To increase the efficiency of cross-border euro payments. TARGET2 processes domestic and cross-border payments equally fast. Customer payments are settled in TARGET2 on settlement days between 8:00 and 18:00 and interbank payments are settled between 8:00 and 19:00.
TARGET2 processes a daily average of around 350,000 payments with a total value of roughly two trillion euros.
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
- the system is open 8:00-19:00 on each settlement day, except weekends and TARGET2 holidays
- 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
TARGET2-Eesti was launched on 19 May 2008.
Ways of participating in TARGET2-Eesti:
Direct participation – TARGET2-Eesti is available for credit institutions based in the European Economic Area, and bank branches that operate in the EEA. To use TARGET2-Eesti, a bank must have a TARGET2 account at Eesti Pank (Application to open an account at Eesti Pank), which allows transactions to be made and observed and inquiries to be made in real time.
Direct participants can designate addressable BIC (Bank Identification Code) holders, which allows those entities that have a BIC but are not recognised as indirect participants to transmit payment instructions and send payments through TARGET2 direct participants if they have a contract for this with the direct participant. This may be a correspondent bank, a branch of a direct or indirect participant, or a client of the bank.
A direct participant may grant access to its TARGET2 account to its branches or parent company based in the EEA or to other branches of the same legal entity in order to submit payment orders or receive payments directly.
Indirect participation – a credit institution that is a direct participant in TARGET2 can provide access to TARGET2 as indirect participation to credit institutions based in the EEA. All the transactions of indirect participants are made through the TARGET2 account of a direct participant. There are no indirect participants in TARGET2-Eesti.
Participants in TARGET2-Eesti
At the end of May 2018 there were 12 participants in TARGET2-Eesti, which included all the banks operating in Estonia:
- AS Citadele Banka Estonia branch
- Coop Pank AS
- AS LHV Pank
- AS SEB Pank
- BIGBANK AS
- Danske Bank AS Estonia branch
- Luminor Bank AS
- Eesti Pank
- OP Corporate Bank plc Eesti filiaal
- Svenska Handelsbanken AB Estonia Branch
- Swedbank AS
- Tallinna Äripanga AS
The TARGET2 services that participants of TARGET2-Eesti can use are:
- Settlement of transactions arising from the monetary policy operations of the Eurosystem
- Settlement of transactions arising from the use of the deposit facility and the marginal lending facility of the Eurosystem
- A range of liquidity management options including prioritisation of transactions, limits for counterparties, timing of transactions, and monitoring of intra-group consolidated liquidity
- Settlements with net settlement systems
- Settlement of interbank transactions
- Settlement of customer payments; TARGET2 allows participants of TARGET2-Eesti to offer their customers express euro payment services. Customer payments are made from the payer to the payee in about 15 minutes
Connection with TARGET2-Eesti
Direct participants of TARGET2-Eesti can access the TARGET2 platform in two ways:
- through SWIFT, the Society for Worldwide Interbank Financial Telecommunication. Participants choosing a SWIFT connection need to apply for access to the TARGET2 services on the SWIFT website and to meet the technical requirements
- through secure internet-based access run by the Eurosystem