Misplaced Pages

#976023

103-502: TARGET2 is also an interbank RTGS payment system for the clearing of cross-border transfers in the eurozone. Participants in the system are either direct or indirect. Direct participants hold an RTGS account and have access to real-time information and control tools. They are responsible for all payments sent from or received on their accounts by themselves or any indirect participants operating through them. Indirect participation means that payment orders are always sent to and received from

206-590: A payment system , such as TARGET2 in Europe. In the context of cross-border transactions, this step often takes place through correspondent banking accounts that financial institutions have with each other. SWIFT means several things in the financial world: Under 3 above, SWIFT provides turn-key solutions for members, consisting of linkage clients to facilitate connectivity to the SWIFT network and CBTs or "computer-based terminals" which members use to manage

309-714: A Russian alternative to SWIFT, was developed by the Central Bank of Russia as a backup measure. During the prelude to the 2022 Russian invasion of Ukraine , the United States developed preliminary possible sanctions against Russia, but excluded banning Russia from SWIFT. Following the 2022 Russian invasion of Ukraine , the foreign ministers of the Baltic states Lithuania, Latvia, and Estonia called for Russia to be cut off from SWIFT. However, other EU member states were reluctant, both because European lenders held most of

412-506: A competent authority ensures the soundness of such institutions. Supervised credit institutions established within the European Economic Area are the primary participants. Supervised investment firms, clearing and settlement organisations which are subject to oversight and government treasuries can also be admitted as participants. There are two pricing schemes: The TARGET2 system is closed on Saturdays and Sundays and on

515-462: A continuous basis in central bank money with immediate finality. There is no upper or lower limit on the value of payments. TARGET2 mainly settles operations of monetary policy and money market operations. TARGET2 has to be used for all payments involving the Eurosystem, as well as for the settlement of operations of all large-value net settlement systems and securities settlement systems handling

618-600: A distributed architecture with a two-zone model for storing messages (see § Operations centres ) . Concurrently, the European Union negotiated an agreement with the United States government to permit the transfer of intra-EU SWIFT transaction information to the United States under certain circumstances. Because of concerns about its potential contents, the European Parliament adopted

721-436: A global scale, but there are still many country-specific and product-specific systems. Examples of payment systems that have become globally available are credit card and automated teller machine (ATM) networks. Additionally, forms exist to transfer funds between financial institutions. Domestically this is accomplished by using Automated clearing house (ACH) and real-time gross settlement (RTGS) systems. Internationally this

824-704: A group known as the Shadow Brokers released files allegedly from the NSA which indicate that the agency monitored financial transactions made through SWIFT. In January 2012, the advocacy group United Against Nuclear Iran (UANI) implemented a campaign calling on SWIFT to end all relations with Iran's banking system, including the Central Bank of Iran . UANI asserted that Iran's membership in SWIFT violated US and EU financial sanctions against Iran as well as SWIFT's own corporate rules. Consequently, in February 2012,

927-500: A monumental new head office building in La Hulpe , designed by Ricardo Bofill Taller de Arquitectura . SWIFT's shareholding structure is adjusted every three years in proportion to volumes of activity incurred by the members, ensuring that the most active members get the most voice irrespective of geography; additional rules are aimed at ensuring some geographical diversity within the board of directors. The 25 directors are elected by

1030-461: A national economy. Such failures can result in inefficient use of financial resources, inequitable risk-sharing among agents, actual losses for participants, and loss of confidence in the financial system and in the very use of money. The technical efficiency of the payment system is important for the development of the economy. An automated clearing house (ACH) system processes transactions in batches, storing, and transmitting them in groups. An ACH

1133-661: A position statement in September 2009, demanding to see the full text of the agreement and asking that it be fully compliant with EU privacy legislation, with oversight mechanisms emplaced to ensure that all data requests were handled appropriately. An interim agreement was signed without European Parliamentary approval by the European Council on 30 November 2009, the day before the Lisbon Treaty —which would have prohibited such an agreement from being signed under

SECTION 10

#1732765511977

1236-458: A public system involving manual writing and reading of messages. SWIFT was set up out of fear of what might happen if a single private and fully American entity controlled global financial flows – which before was First National City Bank (FNCB) of New York – later Citibank. In response to FNCB's protocol, FNCB's competitors in the US and Europe pushed an alternative "messaging system that could replace

1339-609: A regularly performed settlement procedure in which ownership shares in a common Fed clearing portfolio are reallocated among the various district Feds comprising the US Federal Reserve System. They advocate the establishment of a similar system in Europe to end the ECB's role as a provider of international public credit that undercuts private market conditions. Hans-Werner Sinn addressed the TARGET balances issue again in

1442-522: A shared data processing system and worldwide communications network designed by Logica and developed by the Burroughs Corporation . Fundamental operating procedures and rules for liability were established in 1975, and the first message was ceremonially sent by Prince Albert of Belgium on 9 May 1977. SWIFT's first non-European operations centre was inaugurated by Governor John N. Dalton of Virginia in 1979. In 1989 SWIFT completed

1545-654: A single location – e.g. their head office. TARGET2 users have, via the Information and Control Module, access to comprehensive online information and easy-to-use liquidity management features that meet their business needs. TARGET2 has a range of features allowing efficient liquidity management, including payment priorities, timed transactions, liquidity reservation facilities, limits, liquidity pooling and optimisation procedures. The access criteria for TARGET2 aim to allow broad levels of participation by institutions involved in clearing and settlement activities. Supervision by

1648-551: A special edition of ifo Schnelldienst and made it the main topic of his book Die Target-Falle ("The Target Trap"), published in early October 2012. A number of economists took a stand on the issue of the TARGET balances in a publication of the Ifo Institute, confirming Sinn's analysis. Financial commentator David Marsh , writing in early 2012, noted that TARGET2 provides "automatic central bank funding for EMU countries suffering capital outflows provided through it" and that

1751-457: A stock market on the continent, also experienced some outages, per the report. Starting during the 2007–2008 financial crisis and the European debt crisis , the main subjects of criticism were the unlimited financial balances made available since the establishment of the TARGET system by the national central banks of the Eurosystem on the one hand and by the ECB on the other. The issue of

1854-578: A wider group of central banks." Purported alternatives to the SWIFT system include: Swift has been criticised for inefficiency. In 2018, the London-based Financial Times noted that transfers frequently "pass through multiple banks before reaching their final destination, making them time-consuming, costly and lacking transparency on how much money will arrive at the other end". Swift has since introduced an improved service called "Global Payments Innovation" (GPI), claiming it

1957-476: A wrapper around all messages legacy or contemporary. The communication protocols can be broken down into: InterAct FileAct Browse SWIFT provides a centralized store-and-forward mechanism, with some transaction management. For bank A to send a message to bank B with a copy or authorization involving institution C, it formats the message according to standards and securely sends it to SWIFT. SWIFT guarantees its secure and reliable delivery to B after

2060-591: Is a RTGS system that covers the European Union member states which use the euro . It is part of the Eurosystem , which comprises the European Central Bank and the national central banks of those countries that have adopted the euro. TARGET2 is used for the settlement of central bank operations, large-value Euro interbank transfers as well as other euro payments. TARGET 2 provides real-time financial transfers, debt settlement at central banks which

2163-585: Is a cooperative established in 1973 in Belgium ( French : Société Coopérative ) and owned by the banks and other member firms that use its service. SWIFT provides the main messaging network through which international payments are initiated. It also sells software and services to financial institutions, mostly for use on its proprietary "SWIFTNet", and assigns ISO 9362 Business Identifier Codes (BICs), popularly known as "Swift codes". As of 2018, around half of all high-value cross-border payments worldwide used

SECTION 20

#1732765511977

2266-512: Is accomplished by correspondent banking (possibly using the SWIFT network) or a more centralised system like the CLS settlement system . An efficient national payment system reduces the cost of exchanging goods, services, and assets. It is indispensable to the functioning of the interbank, money, and capital markets. A weak payment system may severely drag on the stability and developmental capacity of

2369-557: Is an operational network which links bank accounts and provides for monetary exchange using bank deposits . Some payment systems also include credit mechanisms, which are essentially a different aspect of payment. Payment systems are used in lieu of tendering cash in domestic and international transactions. This consists of a major service provided by banks and other financial institutions. Traditional payment systems include negotiable instruments such as drafts (e.g., cheques) and documentary credits such as letters of credit . With

2472-496: Is considered a net settlement system, which means settlement may be delayed. This poses what is known as settlement risk . Real-time gross settlement systems (RTGS) are funds transfer systems where the transfer of money or securities takes place from one bank to another on a "real-time" and on "gross" basis. Settlement in "real time" means that payment transaction does not require any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means

2575-427: Is higher volumes of payments—in terms of both currency value and number of transactions. This is also leading to a consequent shift downwards in the average value of these payments. The ways these payments are made can be cumbersome, error prone, and expensive. Payments systems set up decades ago continue to be used sometimes retrofitted , sometimes force-fitted—to meet the needs of modern corporations. And, frequently,

2678-511: Is immediate and irreversible. For users of these systems, on both the paying and receiving sides, it can be difficult and time-consuming to learn how to use cross-border payments tools, and how to set up processes to make optimal use of them. Solution providers (both banks and non-banks) also face challenges cobbling together old systems to meet new demands. For these providers, cross-border payments are both lucrative (especially given foreign exchange conversion revenue) and rewarding, in terms of

2781-566: Is mandatory for the settlement of any euro operations involving the Eurosystem . The Eurosystem consists of the European Central Bank (ECB) and the national central banks of the 20 European Union member states that are part of the Eurozone. Participation in TARGET2 is mandatory for new member states joining the Eurozone. TARGET2 services in euro are available to non-Eurozone states. National central banks of states which have not yet adopted

2884-525: Is very wide. Assets eligible for monetary policy purposes are also eligible for intraday credit. Under Eurosystem rules, credit can only be granted by the national central bank of the member state where the participant is established. Banks' treasury managers have a keen interest in the use of automated processes for the optimisation of payment and liquidity management. They need tools that will allow them to track activity across accounts and, where possible, make accurate intraday and overnight funding decisions from

2987-632: The Los Angeles Times revealed a program, named the Terrorist Finance Tracking Program , which the US Treasury Department , Central Intelligence Agency (CIA) , and other United States governmental agencies initiated after the 11 September attacks to gain access to the SWIFT transaction database. After the publication of these articles, SWIFT quickly came under pressure for compromising

3090-590: The Council of the European Union and the Council's subsequent ruling, SWIFT disconnected all Iranian banks that had been identified as institutions in breach of current EU sanctions from its international network and warned that even more Iranian financial institutions could be disconnected from the network. In February 2016, most Iranian banks reconnected to the network following the lift of sanctions due to

3193-745: The Joint Comprehensive Plan of Action . In 2014, SWIFT rejected calls from pro-Palestinian activists to revoke Israeli banks ' access to its network owing to the Israeli occupation of Palestinian territory. Similarly, in August 2014 the UK planned to press the EU to block Russian use of SWIFT as a sanction due to Russian military intervention in Ukraine . However, SWIFT refused to do so. SPFS ,

TARGET2 - Misplaced Pages Continue

3296-568: The National Security Agency (NSA) widely monitors banking transactions via SWIFT, as well as credit card transactions. The NSA intercepted and retained data from the SWIFT network used by thousands of banks to securely send transaction information. SWIFT was named as a "target", according to documents leaked by Edward Snowden . The documents revealed that the NSA spied on SWIFT using a variety of methods, including reading "SWIFT printer traffic from numerous banks". In April 2017,

3399-484: The U.S. Senate Banking Committee unanimously approved sanctions against SWIFT aimed at pressuring it to terminate its ties with blacklisted Iranian banks. Expelling Iranian banks from SWIFT would potentially deny Iran access to billions of dollars in revenue using SWIFT but not from using IVTS . Mark Wallace , president of UANI, praised the Senate Banking Committee. Initially SWIFT denied that it

3502-465: The US Fed and the ECB in analysing the balances. Lubik and Rhodes argued that: "TARGET2 merely reflects persistent imbalances in current accounts and capital accounts. It does not cause them ... [and does not represent] a 'stealth bailout' of the periphery nations". Sinn countered that he was misinterpreted in this point insofar as he was just "saying that the current-account deficits were sustained with

3605-736: The United Kingdom , the Federal Reserve Board and the Federal Reserve Bank of New York for the U.S. and the European Central Bank ) started acting as joint overseers, with the National Bank of Belgium (NBB) in a lead role. The oversight focuses primarily on systemic risk, confidentiality, infrastructure security, and business continuity. It is formalized in bilateral documents between the NBB and SWIFT on

3708-468: The data privacy of its customers by allowing governments to gain access to sensitive personal information. In September 2006, the Belgian government declared that these SWIFT dealings with American governmental authorities were a breach of Belgian and European privacy laws . In response, and to satisfy members' concerns about privacy, SWIFT began a process of improving its architecture by implementing

3811-525: The Bundesbank downplayed the TARGET balances as an irrelevant statistical position. However, in early 2012, Bundesbank chief Jens Weidmann wrote a letter to ECB head Mario Draghi on the subject which "found its way into the columns of the conservative Frankfurter Allgemeine Zeitung newspaper. It appeared to suggest more secure collateralisation for the overall ECB credits to weaker EMU central banks, which now amount to more than €800 billion under

3914-572: The ECB's TARGET2 electronic payment system," Marsh noted in a subsequent column. Jens Ulbrich and Alexander Lipponer (economists at the Bundesbank) justified the policy of the ECB during the European balance-of-payments crisis as follows: In the crisis, the Eurosystem consciously assumed a larger intermediation function in view of the massive disruptions in the interbank market by extending its liquidity control instruments. With this greater role in

4017-585: The EU. On 20 March 2023, the Russian Federation banned the use of SWIFT. The European Union issued the first set of sanctions against Belarus - the first was introduced on 27 February 2022, which banned certain categories of Belarusian items in the EU, including timber, steel, mineral fuels and tobacco. After the Lithuanian prime minister proposed disconnecting Belarus from SWIFT, the European Union , which does not recognise Lukashenko as

4120-546: The European Central Bank which provides and maintains information on TARGET2 both for the general public as for professional users of TARGET2 Payment system A payment system is any system used to settle financial transactions through the transfer of monetary value . This includes the institutions , payment instruments such as payment cards , people, rules, procedures, standards, and technologies that make its exchange possible. A payment system

4223-400: The European zone. SWIFT moved to its current IP network infrastructure, known as SWIFTNet, from 2001 to 2005, providing a total replacement of the previous X.25 infrastructure. The process involved the development of new protocols that facilitate efficient messaging, using existing and new message standards. The adopted technology chosen to develop the protocols was XML , which now provides

TARGET2 - Misplaced Pages Continue

4326-491: The Eurosystem's monetary policy operations, as well as bank‑to‑bank and commercial transactions. TARGET2 previously handled transactions for over €2.2 trillion per day. Since the establishment of the European Economic Community in 1958, there has been movement towards an integrated European financial market. This movement has been marked by several events: In the field of payments, the most visible were

4429-643: The G10 central banks, the SWIFT Oversight Forum included the national central banks of Argentina , Australia , Brazil , China , Hong Kong , India , Indonesia , Korea , Mexico , Russia , Saudi Arabia , Singapore , South Africa , Spain , and Turkey . According to SWIFT, the Oversight Forum "provides a forum for the G-10 central banks to share information on Swift oversight activities with

4532-458: The German budget and, should the situation arise, in the necessity to recapitalise the Bundesbank through increased taxation. Sinn uses the same reasoning in his book Die Target-Falle . Sinn points out that the option of self-rescue for the crisis-affected countries by drawing TARGET credit forces Germany to approve the formal rescue facilities and eventually to accept eurobonds as well. He considers

4635-706: The ICM, users have access to the Payments Module and the Static Data Management function. Users of the ICM are able to choose what information they receive and when. Urgent messages (e.g. system broadcasts from central banks and warnings concerning payments with a debit time indicator) are automatically displayed on the screen. TARGET2 provides settlement services for a wide range of ancillary systems. While each of these used to have its own settlement procedure, TARGET2 now offers six generic procedures for

4738-542: The Internet, or broadly to any type of electronic funds transfer . Modern payment systems use cash-substitutes as compared to traditional payment systems. This includes debit cards , credit cards, electronic funds transfers, direct credits , direct debits , internet banking and e-commerce payment systems . Payment systems may be physical or electronic and each has its own procedures and protocols. Standardization has allowed some of these systems and networks to grow to

4841-498: The Netherlands, Portugal and Spain. On 19 May 2008, the final group migrated to TARGET2, comprising Denmark, Estonia, Greece, Italy, Poland and the ECB. The six-month migration process went smoothly and did not cause any operational disruptions. Slovakia joined TARGET2 on 1 January 2009, Bulgaria joined in February 2010, Romania on 4 July 2011, and Croatia in February 2016. The objectives of TARGET2 are to: The use of TARGET2

4944-531: The RTGS accounts held on the SSP. However, some countries' domestic arrangements did not allow these operations to be moved rapidly to the SSP. As a result, the Eurosystem agreed on a maximum transition period of four years for moving the settlement of these payments to the SSP. The Information and Control Module (ICM) allows direct users to access information and manage parameters linked to balances and payments online. Via

5047-707: The Republic of Tajikistan, describes that the leading cause for the late Swift Go adoption in Tajikistan was the Core Banking System itself. To connect to Swift Go, he adds, banking system interfaces needed to be upgraded and integrated with their software to be fully compatible; this hindered many banks from adopting the technology earlier. A series of articles published on 23 June 2006 in The New York Times , The Wall Street Journal , and

5150-579: The Swift network, and in 2015, Swift linked more than 11,000 financial institutions in over 200 countries and territories, who were exchanging an average of over 32 million messages per day (compared to an average of 2.4 million daily messages in 1995). Swift is headquartered in La Hulpe near Brussels . It hosts an annual conference, called Sibos , specifically aimed at the financial services industry. Before SWIFT's establishment, international financial transactions were communicated over Telex ,

5253-432: The TARGET balances represent the shift of refinancing credit to the crisis-stricken countries, representing thus the claim on the interest returns from these countries. Eliminating the TARGET balances would thus entail a real loss of resources amounting to the present value of this interest income, which is reflected exactly by the amount of TARGET claims. This loss would result in a smaller transfer of Bundesbank's revenues to

SECTION 50

#1732765511977

5356-528: The U.S. data centre. European zone messages are stored in the Netherlands and in part of the Swiss operating centre; Trans-Atlantic zone messages are stored in the United States and in another part of the Swiss operating centre that is segregated from the European zone messages. Countries outside of Europe were by default allocated to the Trans-Atlantic zone but could choose to have their messages stored in

5459-593: The US by 378 to 196 votes. One week earlier, the parliament's civil liberties committee had already rejected the deal, citing legal reservations. In March 2011, it was reported that two mechanisms of data protection had failed: EUROPOL released a report complaining that requests for information from the US had been too vague (making it impossible to make judgments on validity) and that the guaranteed right for European citizens to know whether their information had been accessed by US authorities had not been put into practice. Der Spiegel reported in September 2013 that

5562-574: The United States, the Netherlands, and Switzerland. These centres share information in near real-time . In case of a failure in one of the data centres, another is able to handle the traffic of the complete network. SWIFT uses submarine communications cables to transmit its data. Shortly after opening its third data centre in Switzerland in 2009, SWIFT introduced a new distributed architecture with two messaging zones, European and Trans-Atlantic, so data from European SWIFT members no longer mirrored

5665-625: The acquisition of Credit Suisse ), as well as the Association of Banks in Singapore . Swift acts as a carrier of the "messages containing the payment instructions between financial institutions involved in a transaction". However, the organisation does not manage accounts on behalf of individuals or financial institutions, and it does not hold funds from third parties. It also does not perform clearing or settlement functions. After payment has been initiated, it must be settled through

5768-407: The advent of computers and electronic communications, many alternative electronic payment systems have emerged. The term electronic payment refers to a payment made from one bank account to another using electronic methods and forgoing the direct intervention of bank employees. Narrowly defined electronic payment refers to e-commerce —a payment for buying and selling goods or services offered through

5871-423: The appropriate action by C. SWIFT guarantees are based primarily on high redundancy of hardware, software, and people. During 2007 and 2008, the entire SWIFT network migrated its infrastructure to a new protocol called SWIFTNet Phase 2. The main difference between Phase 2 and the former arrangement is that Phase 2 requires banks connecting to the network to use a Relationship Management Application (RMA) instead of

5974-415: The attendant liability risk. In the German daily Süddeutsche Zeitung he put the entire volume of the TARGET liabilities of Greece, Ireland, Portugal, and Spain at €340 billion at the end of February 2011. Moreover, he pointed out that if these countries should exit the Eurozone and declare insolvency, Germany's liability risk would amount to 33% of that sum, or €114 billion, relating these sums to

6077-507: The balances would "have to be shared out by central banks throughout the Eurosystem ... if EMU fragments into its constituent parts. So the pressure on Germany is to keep the balances growing, in order to avoid crystallization of losses that would be hugely damaging not just to Berlin but also to central banks and governments in Paris and Rome". The official reactions to Sinn's research findings were mixed. At first, in February and March 2011,

6180-429: The basis of the balance sheets of each central bank. Nevertheless, there are also some economists who contradict some points of Sinn's analysis. Paul De Grauwe and Yuemei Ji argue that Germany's and other countries' TARGET claims could be made void, without suffering any losses, since the value of the central bank money, being " fiat money ", is independent of a central bank's assets. Sinn, in his rejoinder, showed that

6283-643: The borderlines of the Federal Reserve Districts do not follow national, not even state borders. Further, a rising ISA balance of the Federal Reserve District of New York would be regarded as not surprising, as New York is the financial center of the United States. Until 1975 there was no rebalancing between Federal Reserve districts, a fact which did not lead to major discussions. Finally, in late 2016, after some years of relative improvement but with rising worries over Italy,

SECTION 60

#1732765511977

6386-458: The concomitant TARGET credit. They also document the Irish capital flight and the capital flight from Spain and Italy, which began in earnest in summer 2011. Following Sinn, the authors compare the TARGET balances of the Eurosystem with the corresponding balances in the US settlement system ( Interdistrict Settlement Account ) and point out that US balances relative to US GDP have decreased thanks to

6489-467: The day. The averaging provisions applied to minimum reserves allow banks to be flexible in their end-of-day liquidity management. The overnight lending and deposit facilities also allow for continuous liquidity management decisions. The Eurosystem provides intraday credit. This credit must be fully collateralised and no interest is charged. However, all Eurosystem credit must be fully collateralised, i.e. secured by other assets. The range of eligible collateral

6592-412: The delivery and receipt of their messages. Some of the more well-known interfaces and CBTs provided to their members are: There are four key areas that SWIFT services fall under in the financial marketplace: securities , treasury & derivatives , trade services, and payments & cash management. Securities Treasury and derivatives Cash management Trade services Swift Ref,

6695-672: The domestic stock of money, must be offset by a continuous issuing of new refinancing credit, i.e., the creation of new central bank money. Similarly, the increase in money balances in the country whose central bank honours the payment orders reduces the demand for fresh refinancing credit. Hence, a country's TARGET liabilities also indicate the extent to which its central bank has replaced the capital markets to finance its current account deficit, as well as any possible capital flight, by creating new central bank money through corresponding refinancing credit. Sinn illustrated that from an economic perspective, TARGET credit and formal rescue facilities serve

6798-422: The euro can also participate in TARGET2 to facilitate the settlement of transactions in euro. Central banks from four non-Eurozone states Bulgaria, Denmark, Poland and Romania also participate in TARGET2. In 2012, TARGET2 had 999 direct participants, 3,386 indirect participants and 13,313 correspondents. TARGET2 is the real-time gross settlement (RTGS) system with payment transactions being settled one by one on

6901-536: The euro crisis is a balance-of-payments crisis, which in its substance is similar to the Bretton Woods crisis . Moreover, they show the extent to which TARGET credit financed current account deficits or capital flight in Greece, Ireland, Portugal, Spain and Italy. They also show that the current account deficits of Greece and Portugal were financed for years by refinancing credits of their national central banks and

7004-509: The euro. TARGET2 is operated on a single technical platform. The business relationships are established between the TARGET2 users and their national central bank. In terms of the value processed, TARGET2 is one of the largest payment systems in the world. TARGET2 is a harmonised RTGS system covering the Eurozone. It operates on the Single Shared Platform (SSP), which replaced the decentralised first-generation TARGET system. It

7107-466: The extra refinancing credit behind the TARGET balances" and this would "not equate to claiming that current-account deficits and TARGET deficits were positively correlated". Alexander L. Wolman believes that rising Interdistrict Settlement Account (ISA) balances – the US-equivalent of rising TARGET balances, if there were no yearly rebalancing – would not be a reason for concern in the US, because

7210-455: The first group of countries (Austria, Cyprus, Germany, Latvia, Lithuania, Luxembourg, Malta and Slovenia) migrated to the SSP. This first migration was successful and confirmed the reliability of SSP. After this initial migration, TARGET2 already settled around 50% of overall traffic in terms of volume and 30% in terms of value. On 18 February 2008, the second migration successfully migrated to TARGET2, comprising Belgium, Finland, France, Ireland,

7313-425: The first panel database of the Eurozone's TARGET balances. The authors point out that the additional creation of money by the central banks of the crisis-stricken countries was provided by a lowering of the standards for the collateral that commercial banks have to provide to their national central banks to obtain refinancing credit. Furthermore, they showed that the commercial banks of the Eurozone's core countries used

7416-644: The following public holidays in all participating countries: 1 January, Good Friday and Easter Monday (according to the calendar used by Western Christianity), 1 May, 25 December and 26 December. In October 2020, the system and TARGET2 Securities experienced an almost-11-hour outage, attributed to a "software glitch in a third-party network device" by the ECB, per a report. Much shorter service interruptions of different sorts have hit Target2 in July 2019, November 2018 and December 2017, and in October 2020 Euronext NV,

7519-478: The former bilateral key exchange (BKE) system. According to SWIFT's public information database on the subject, RMA software should eventually prove more secure and easier to keep up-to-date; however, converting to the RMA system meant that thousands of banks around the world had to update their international payment systems to comply with the new standards. RMA completely replaced BKE on 1 January 2009. SWIFT has become

7622-570: The functioning of the financial system under more difficult conditions. The Ifo Institute's regularly updated "Exposure level indicator" ('Haftungspegel') shows Germany's potential financial burden should the crisis-stricken euro countries exit the currency union and declare insolvency. In another development, the Institute of Empirical Economic Research at the University of Osnabrueck collects and publishes TARGET2 data from all euro countries on

7725-440: The global payment reference data utility, is SWIFT's unique reference data service. Swift Ref sources data directly from data originators, including central banks, code issuers and banks making it easy for issuers and originators to maintain data regularly and thoroughly. SWIFTRef constantly validates and cross-checks data across the different data sets. The SWIFT secure messaging network is run from three data centres , located in

7828-457: The incoming liquidity to reduce the refinancing credit they drew from their national central bank, even lending the surplus liquidity to this central bank, which implies that the TARGET balances indirectly also measure the reallocation of refinancing credit among the countries of the Eurozone. The authors showed that the national central banks of the northern countries became net debtors to their own banking systems. Sinn and Wollmershaeuser argue that

7931-549: The increasing TARGET balances was brought to public attention for the first time in early 2011 by Hans-Werner Sinn , president of the Munich-based Ifo Institute for Economic Research . In an article in Wirtschaftswoche , he drew attention to the enormous increase in TARGET claims held by Germany's Bundesbank, from €5 billion at the end of 2006 to €326 billion at the end of 2010, and to

8034-445: The industry standard for syntax in financial messages. Messages formatted to SWIFT standards can be read and processed by many well-known financial processing systems, whether or not the message travelled over the SWIFT network. SWIFT cooperates with international organizations to define standards for message format and content. SWIFT is also a registration authority (RA) for the following ISO standards: In RFC 3615 urn:swift:

8137-458: The international shifting of the refinancing credit that the national central banks of the Eurosystem grant to the commercial banks in their jurisdiction . He proved that the ECB system compensated the interruption and reversal in capital flows triggered by the 2007–2008 financial crisis by shifting refinancing credit among national central banks. The increase in TARGET liabilities is a direct measure of net payment orders across borders, i.e. of

8240-411: The introduction of TARGET2, some central banks held "home accounts" (also called "proprietary home accounting systems") outside their RTGS systems. These were used primarily to manage minimum reserves, standing facilities and cash withdrawals, but also to settle ancillary systems' transactions. It was agreed that, in the context of the new system, these types of transaction should ultimately be settled on

8343-542: The launch of the euro in 1999 and the cash changeover in the euro area countries in 2002. The establishment of the large-value central bank payment system TARGET was less visible, but also of great importance. It formed an integral part of the introduction of the euro and facilitated the rapid integration of the euro area money market. The implementation of TARGET2 was based on a decision of the ECB Council of autumn 2002. TARGET2 started operations on 19 November 2007, when

8446-461: The level of TARGET2 intra-eurozone balances at the ECB had surpassed 2012's record levels. The claims represented half of the Germany's net foreign assets and were on track shortly to reach €1 trillion if trends continued unchecked. This article incorporates text from the corresponding German Misplaced Pages articles on TARGET and TARGET2 as of 4 April 2008. More text also from the website of

8549-457: The nearly $ 30 billion in foreign banks' exposure to Russia and because Russia had developed the SPFS alternative. The European Union, United Kingdom, Canada, and the United States finally agreed to remove a few Russian banks from the SWIFT messaging system in response to the 2022 Russian invasion of Ukraine; the governments of France, Germany, Italy and Japan individually released statements alongside

8652-554: The one hand, and between the NBB and each of the other G10 central banks on the other hand. In 2018, the International Monetary Fund has recommended that "the National Bank of Belgium should consider enhancing oversight with additional regulatory and supervisory powers." In 2012, this framework was complemented by a "SWIFT Oversight Forum" including additional central banks. As of 2024, in addition to

8755-419: The other rescue facilities of euro countries and the International Monetary Fund . Before he made them public, TARGET deficits or surpluses were not the subject of major public attention even though they were disclosed by Eurosystem central banks. Shortly thereafter, Sinn interpreted the TARGET balances for the first time within the context of current account deficits, international private capital movements and

8858-472: The overall financial relationship created with the end customer. The challenges for global payments are not simply those resulting from volume increases. A number of economic, political, and technical factors are changing the types of cross-border transactions conducted. Such factors include: Society for Worldwide Interbank Financial Telecommunication The Society for Worldwide Interbank Financial Telecommunication ( Swift ), legally S.W.I.F.T. SC ,

8961-466: The portion of the current account deficit that is not counterbalanced by capital imports, or, equivalently, the sum of the current account deficit and net capital exports. Indirectly, they also measure a country's amount of central bank money created and lent out beyond what is needed for domestic circulation. Since every country needs a relatively steady amount of central bank money for its domestic transactions, payment orders to other countries, which reduce

9064-409: The provision of central bank money – essentially by changing to a full allotment procedure in refinancing operations and the extension of longer-term refinancing operations – the total volume of refinancing credits provided has increased (temporarily even markedly). At the same time, the quality requirements for the underlying collateral were reduced in the crisis. The higher risk was accepted to maintain

9167-618: The public providers and speed up the payment process". SWIFT was founded in Brussels on 3 May 1973. Individuals who played a key role in its creation included bankers Jan Kraa (at AMRO Bank ) and François Dentz (at the Banque de l'Union Parisienne ) as well as Carl Reuterskiöld and Bessel Kok , who became respectively its first two chairmen and chief executives. It was initially supported by 239 banks in 15 countries. It soon started to establish common standards for financial transactions and

9270-474: The resulting path dependence in policy-making a "trap". Analysis of TARGET2 balances countering the Ifo conclusions have been advanced by economist Karl Whelan at University College Dublin . In summer 2012, Thomas A. Lubik, a senior economist and research advisor, and Karl Rhodes, a writer, both at the Federal Reserve Bank of Richmond (Virginia, US), cited Whelan's work and also drew parallels and distinctions between

9373-690: The same purpose and involve similar liability risks. Sinn's presentation on 19 May 2011 at the Munich Economic Summit motivated an op-ed column in the Financial Times . They reconstructed the data on the basis of the balance sheets of the Eurosystem's national central banks and the balance-sheet statistics of the International Monetary Fund. Later, in June 2011, Hans-Werner Sinn and Timo Wollmershaeuser compiled

9476-509: The settlement of ancillary systems and allows these systems to access any account on the SSP via a standardised interface. In 2012, TARGET2: The availability and cost of liquidity are two crucial issues for the smooth processing of payments in RTGS systems. In TARGET2, liquidity can be managed very flexibly and is available at low-cost since fully remunerated minimum reserves – which credit institutions are required to hold with their central bank – can be used in full for settlement purposes during

9579-578: The shareholders, on three-year terms with the renewal of one-third of the board every year; all directors are member representatives. As of May 2024, the members directly represented on the board of directors were JPMorgan Chase (chair), Lloyds Bank (deputy chair), Bank of China , BNP Paribas , BPCE , Citi , Clearstream , Commerzbank , Commonwealth Bank of Australia , Deutsche Bank , Euroclear , FirstRand , HSBC , ING , Intesa Sanpaolo , KBC , MUFG , NatWest , Nordea , Royal Bank of Canada , Santander , SEB , UBS (2 representatives following

9682-777: The system and its participants. SSP has adopted a modular approach, with each module being closely related to a specific service. The Payments Module, for example, is used for the processing of payments. Some modules (i.e., the Home Accounting Module, the Standing Facilities Module and the Reserve Management Module) can be used by individual central banks on an optional basis. Central banks which do not use particular modules set up other applications within their own internal technical environments to perform such functions. Before

9785-495: The system via a direct participant, with only the relevant direct participant having a legal relationship with the Eurosystem. Finally, bank branches and subsidiaries can choose to participate in TARGET2 as multi-addressee access or addressable BICs . The Eurosystem in March 2023 switched its real-time gross settlement from TARGET2 to T2 , which follows ISO 20022 . The switch involves transactions for settling payments related to

9888-616: The systems creak and groan as they bear the strain. Examples of such systems include STEP2 (an upgrade from 2003), which processes only Euros, and TARGET2 (an upgrade from 2007), which is closed on Saturdays and Sundays and some public holidays. As of 2014, STEP2 is the only Pan-European automated clearing house (or PE-ACH system) in operation. This type of system is thought to become less relevant as banks will settle their transactions via multiple clearing houses rather than using one central clearing house. TARGET2 (Trans-European Automated Real-time Gross Settlement Express Transfer System)

9991-475: The terms of the codecision procedure —formally came into effect. While the interim agreement was scheduled to come into effect on 1 January 2010, the text of the agreement was classified as "EU Restricted" until translations could be provided in all EU languages and published on 25 January 2010. On 11 February 2010, the European Parliament decided to reject the interim agreement between the EU and

10094-405: The transaction from debit of ordering customer's account to credit of beneficiary customer's account within a timeframe of 10–15 seconds. Globalization is driving corporations to transact more frequently across borders. Consumers are also transacting more on a global basis—buying from foreign eCommerce sites as well as traveling, living, and working abroad. For the payments industry , the result

10197-452: The transaction is settled on one to one basis without bunching or netting with any other transaction. Once processed, payments are final and irrevocable. Comparatively, ACHs are typically used for low-value, non-urgent transactions while RTGS systems are typically used for high-value, urgent transactions. Countries and regions have also implemented real-time or instant (or faster) payment systems which typically operate 24x7x365 and perform

10300-428: Was acting illegally, but later said that "it is working with U.S. and European governments to address their concerns that its financial services are being used by Iran to avoid sanctions and conduct illicit business". Targeted banks would be—amongst others— Saderat Bank of Iran , Bank Mellat , Post Bank of Iran and Sepah Bank . On 17 March 2012, following an agreement two days earlier between all 27 member states of

10403-468: Was adopted by 165 banks and was completing half its payments within 30 minutes. The new standard which included Swift Go was supposed to be utilised in receiving and transferring low-value international payments. One of the significant changes was the transaction amount, which would not differ from start to end. However, as of 2023 , uptake was mixed. For instance, Alisherov Eraj, Alif Bank Treasury Department Swift Transfers & Banking Relationship Expert in

10506-482: Was defined as Uniform Resource Names (URNs) for SWIFT FIN. SWIFT is not a payment system and thus neither regulated nor supervised as such, but is nevertheless deemed to be systemically important and thus under the "oversight" of public authorities. In 1998, the so-called Group of Ten central banks (those of Belgium , Canada , France , Germany , Italy , Japan , the Netherlands , Sweden , Switzerland ,

10609-406: Was designed to provide an enhanced service with benefits for economies of scale which allows it to charge lower fees and offer cost-efficiency. All participants of the Eurosystem, and outside it, can access the same functionalities and interfaces, as well as a single price structure. SWIFT standards and services (i.e. FIN, InterAct, FileAct and Browse) are used in the harmonised communication between

#976023