T2 (TARGET RTGS and central liquidity management)
T2 is the Eurosystem's real-time gross settlement system for euro, which replaced TARGET2 in March 2023. It combines Central Liquidity Management, where banks hold their main central bank accounts, with an RTGS service where high-value payments settle one by one in central bank money. It is part of the TARGET Services with T2S and TIPS.
Roles that need it
What it is
T2 is the Eurosystem’s real-time gross settlement (RTGS) system for euro, run by the central banks of the euro area. It replaced TARGET2 on 20 March 2023. T2 has two main parts. Central Liquidity Management (CLM) holds each bank’s main cash account with the central bank, where central bank operations settle. The RTGS service settles high-value and urgent payments between banks one by one, in central bank money. T2 uses ISO 20022 messages and connects to the other TARGET Services: T2S for securities settlement and TIPS for instant payments.
Why it matters
T2 is the backbone of the euro. Monetary policy operations, interbank loans, the cash legs of many securities trades and the final settlement of retail clearing houses all pass through it. Payments in T2 are final and irrevocable once settled, which removes credit risk between participants. Banks must manage liquidity across their accounts during the day: if a payment is larger than the balance, it waits in a queue until funds arrive or the bank moves liquidity, for example by drawing intraday credit against collateral.
Worked example
Illustrative numbers. At 07:00 a bank has 2 billion euro on its main cash account in CLM. It moves 1.2 billion euro to its RTGS dedicated cash account for the day’s payments and 300 million euro to its TIPS account for instant payments. By 11:00 it has sent 3.5 billion euro of RTGS payments and received 3.0 billion euro, so its RTGS balance is 700 million euro (1.2 billion minus 3.5 billion plus 3.0 billion). A 900 million euro payment for a client queues until another 200 million euro arrives or the treasury team moves more liquidity. Customer payments must reach T2 before the 17:00 cut-off, and interbank payments before 18:00.
Who uses it
Treasury operations analysts (TRESOPS) monitor balances, queues and liquidity transfers through the day. Payments operations analysts (PAYOPS) release high-value payments and handle exceptions. Liquidity risk analysts (LIQRISK) measure intraday liquidity use and stress scenarios. Payments messaging specialists (SWIFTOPS) run the ISO 20022 connection. Payments sales for financial institutions (PCMSALES-FI) offer indirect access to T2 to client banks. ALM analysts (ALM) include central bank balances in the balance sheet and funding plan.
Common confusions
TARGET is the name of the family of services, and T2 is its RTGS and liquidity part; people still say TARGET2 for the old system. T2 settles in central bank money, while a correspondent bank settles in commercial bank money on its own books. Many banks reach T2 through another bank instead of directly, which affects their cut-off times and liquidity. Finally, T2 and TIPS share liquidity coming from CLM, yet TIPS runs around the clock while the RTGS service follows business-day opening hours.