This is the third of a three-part series on TARGET2-Securities (T2S) and the implications for banks. If you are just joining me, you may want to read the first two posts in this series:

This week, I will address two additional questions that banks should consider for their post-T2S strategy.

4. Will central bank quality liquidity pooling be a game changer for banks using T2S?

T2S allows the securities and cash accounts to sit on the same infrastructure, under the control of a Central Securities Depository (CSD) and National Central Bank (NCB), respectively. This can enable a multi-country custodian bank to reduce costs and improve operational efficiency by servicing securities accounts in different CSDs and countries, via a single consolidated cash account. The benefits for non-Euro banks are even greater, as T2S provides central bank money settlement capabilities in their national currencies within the Eurozone.

However, T2S splits liquidity between two platforms—TARGET2 and T2S—limiting NCBs’ ability to obtain a global view of their total liquidity.

Banks should reassess their business models for securities settlement, and strive to minimize inefficiencies posed by T2S with respect to liquidity.

5. Direct connectivity: Is there an actual benefit for the custodians?

Through T2S, custodians can become “directly connected participants,” enabling them to send settlement instructions and settle them on T2S. This eliminates the need for CSD as intermediary, improving cross-border settlement efficiency.

Large global custodians can use direct connectivity as a powerful enabler of cross-border transactions. Smaller custodian banks should also reevaluate their business models to minimize the requirement to connect to multiple CSDs, and make use of intermediaries with multi-market capabilities.


While there are significant challenges in implementing T2S, the potential benefits are significant. A successful T2S launch would streamline settlement processes, increase competition and lower costs for most players. Banks must make the most of the opportunities that T2S offers, and plan now to achieve competitiveness in a post-T2S market.

To learn more, download TARGET2-Securities: Are You on Target? (pdf; opens in a new window).

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