De Nederlandsche Bank

1
TARGET1 and TARGET2 Implementation of
monetary policy
Bernard de Groes Payments and Securities 13
April 2007
2
Agenda

• 1. General overview TARGET2
• 2. Implementation of monetary policy

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1. General overview TARGET2

• Back to TARGET1
• TARGET2 platform
• Participation in TARGET2
• Liquidity Management
• Timeline and status for TARGET2

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Back to TARGET1

• Decentralised system built under tight
  constraints for being ready on 2 January 1999.

5
Back to TARGET1

• Decentralised system built under tight time
  constraints for being ready on 2 January 1999.

• One of the two biggest systems in the world, very
  high market share in euro large value payments.

but
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What changes with TARGET2
For payment activities in general

• Full technical consolidation on a single shared
  platform
• Same core services for all participants
• Single price structure
• Advanced liquidity saving features available
  EU-wide
• Harmonised technical interface for the connection
  
• Enhanced robustness and resilience

7
What changes with TARGET2
For specific settlement operations

• Settlement of ancillary systems
• Single interface for ancillary systems settlement
  based on 6 different models.
• Settlement of participants positions in
  different systems settled via a single RTGS
  account.
• Night time settlement possible from 730pm until
  645am.

• Central Banks operations
• Optional modules for home accounting, reserve
  management and standing facilities.
• Possibility to keep payment activities in
  proprietary home account systems for 4 years
  after the start of TARGET2

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What remains with TARGET2

• Holding of RTGS accounts and business
  relationship remain with National Central Banks.
• Execution of monetary policy operations and
  collateral management remain decentralised.
• Granting of intraday liquidity, holding of
  reserves and access to standing facilities still
  via National Central Bank.

9
Overview of core and optional services offered by
the SSP
Optional
services for
CBs
(CRISP, CRAKS1, CRAKS3)
Payments
Module
(PM)
Static Data
Standing
Management
Facilities
(SF)
Payment
processing
(SD)
mandatory services for CBs (CROSS)
Participant
Ancillary
Home
TARGET
Interface
systems
Monitoring
Accounting
Interlinking
(
Y
-
copy
)
interface
Module (
HAM)
(
Storage
,
Contingency
Reserve
Archiving
,
Module
Management
Files
for
(CM)
(RM)
billing
calculation
)
Information and
Control Module
Standard
interfaces
(ICM)
CBs
Credit
Ancillary
(
internal
accounting
,
institutions(CI)
systems (AS)
collateral
management,
proprietary
home
accounts
,
etc.)
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Participation business overview
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Sources of liquidity in T2

• The availability of sufficient liquidity is of
  high importance for the execution of payments
• The following sources of liquidity can be used
• balances on RTGS accounts
• provision of intraday liquidity
• offsetting payment flows (ie using algorithms to
  settle a number of queued payments)

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Provision of intraday liquidity

• Intraday credit will be granted to the single
  accounts of credit institutions against eligible
  collateral by the respective CB
• Depending on the decision of the CB the following
  procedures can be used
• Implementing credit lines on RTGS accounts
• Implementing credit lines on proprietary home
  accounts
• DVP-processing of intraday repo transactions

13
Migration group allocation
Group composition aimed at minimising project
risk, reducing effect on level playing field and
limiting the costs for central banks and users
19 Nov 2007
18 Feb 2008
19 May 2008
15 Sep 2008
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2. Implementation of monetary policy

• Reserve Management Module
• Standing Facilities Module

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Reserve Management Module

• From a technical point of view, RM is fully
  integrated in the SSP operational environment
  (SWIFTNet interface)
• RM can interact with PM, HAM and proprietary home
  accounts
• RM does not manage any kind of accounts
• Management of indirect reserve
• Pool of reserve accounts of a MFI

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Reserve Management Module
NCB
End-of-day balances
HAM /PM Module
Reserve Management Module
Entry of minimum reserve Entry of remuneration
rates Entry of penalties

• Payment order (at the end of
• the maintenance period)
• interest
• penalties for infringements after CB validation
  process

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Indirect reserve

• The RM offers the possibility of managing
  indirectly the reserve requirement (the minimum
  reserve of a credit institution is deposited by
  another credit institution)
• On the basis of this information the RM is able
  to verify the fulfilment of minimum reserves.

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Indirect reserve

• The central banks can manage
• - the list of banks that decide to fulfil
  indirectly minimum reserves
• - the indication of the bank selected for its
  management

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Pool of reserve accounts of a MFI

• The function "pool of reserve accounts of
  Monetary Financial Institutions (MFI)" envisages
  the fulfilment of reserve requirements for a
  group of participants (which are part of the same
  MFI).
• The fulfilment is evaluated on the basis of the
  total balance, irrespective of the distribution
  of the balances among the different accounts of
  the same MFI in PM, in HAM or in PHA.

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Pool of reserve accounts of a MFI

• Participants using the pooling functionality
  cannot use the indirect reserve management
• No consolidation is envisaged on a cross-border
  basis
• At the end of the maintenance period the accrued
  interest is credited on the account associated to
  the minimum reserve indicated by the MFI

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Interaction and Administration

• CIs have access (via ICM) to the following
  information
• Amount of minimum reserve
• End-of-day balances of the previous business day
• Running average up to the previous business day
• Balance necessary to fulfil the minimum reserve

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Interaction and Administration

• CBs access the same information and are able to
• - Manage the list of banks subject to minimum
  reserve
• - Enter the value of compulsory reserve
• - Manage the validation process for
  infringements
• - Enter minimum reserve remuneration and
  penalties rates
• - Access summarised information (monitoring)

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Standing Facilities Module

• From a technical point of view, SF is fully
  integrated in the SSP operational environment
  (SWIFTNet interface)
• SF is able to manage
• overnight deposit accounts
• marginal lending on request, in general needed
  for the fulfilment of minimum reserve
• automatic marginal lending, available only in
  connection with PM since no intraday credit is
  available in HAM
• CI with account both in PM and HAM have to
  indicate the account to be used for the
  settlement of SF operations

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Standing Facilities Module
Standing Facilities Module
HAM /PM
Overnight Deposit

End-of-day transfers to SF (day d)
NCB
Account
Transfers of capital and interests to HAM/PM
(start of day d1)
Collateral Management for Marginal Lending
Marginal Lending
Transfers to HAM/PM (day d)
Transfers to SF and debiting of interest in
HAM/PM (start of day d1)
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Overnight Deposit
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Marginal Lending Facility - On Request -
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Automatic Marginal Lending Facility
Colletaral Manager
CB
Colletaral Manager
CI
CI
2b
ICM
ICM
Notify spillover
3
MT900
3
Notify decrease credit limit and setting up of
marginal lending
2
SF
SF
2
MT900
Credit transfer and decrease credit limit
2a
1
Directdebit and increase credit limit
Notify increase credit limit and refunding
marginal lending
Notifyintraday credit not returned
3
1
2
3
ACK
ACK
MT910
PM
PM
SSP
SSP
Setting UpSF debits the Marginal Lending
Account
Refunding Interests(at Start of Day)
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Interaction and Administration

• CI have access (via ICM) to the following
  services
• Liquidity transfers with PM/HAM
• Information on the current balance of the
  overnight deposit
• Information on the current balance of available
  liquidity of the marginal lending account
• Transaction processing

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Interaction and Administration

• CBs access the same information and are able to
• Manage the list of participants eligible to make
  use of standing facilities
• Access summarised information (monitoring)

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Questions?
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Customer Information about TARGET2General
Functional Specifications

• General concept of the Single Shared Platform
• Order book for the three central banks
  developing the Single Shared Platform
• Publication August 2004

Only for central banks
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Customer Information about TARGET2User Detailed
Functional Specifications

• Detailed description of
• the Single Shared
• Platform's features
• Operational
• Technical
• Basis for preparing
• participation in the
• Single Shared Platform
• Current version 2.2, published February 2007

For Central banks only
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Customer Information about TARGET2User Detailed
Functional Specifications

• Book 1 - Core Services
• Book 2 - Optional Services
• Book 3 - For Central Banks only
• Book 4 - XML-specifications
• ICM Book 1 - User guide ICM
• ICM Book 2 - For Central Banks only

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TARGET2 websites

• ECB-website
• Address https//target2.ecb.int/
• User t2user
• Password VBjmspRR7
• DNB-website
• Address http//www.dnb.nl
• Payments / Non cash-payments / TARGET2

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