TARGET2 is a real-time gross settlement (RTGS) system used by central banks and commercial banks in order to make payments in Euro.
In simple terms, TARGET 2 works as follows:
- Bank A and Bank B both have accounts with a central bank.
- A payment in Euro is to be made from Bank A to Bank B.
- Bank A submits the payment instructions to TARGET2.
- Bank A’s account within TARGET2 is debited, and Bank B’s account within TARGET2 is credited – the payment is settled.
- TARGET2 transfers the payment information to Bank B.