TARGET2 country migration issues in Germany

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Charlene Garrett
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1 SPIN 2006 EuroMed Banking Conference Rome, 15 June 2006 TARGET2 country migration issues in Germany Hans-Jürgen Friederich Head of Department of Payment Systems, Account Management, Trades Settlement, Securities Deposits

2 From TARGET 1 to GB CHAPS euro BE ELLIPS DK KRONOS FR TBF DE, SI RTGS plus ES SLBE ECB EPM NL TOP PT SPGT GR Hermes IE IRIS IT New BIREL PL Sorbnet Euro Single Shared Platform (SSP) developed and operated by BdI, BdF, BBk (3CB) ARTIS AT SE E-RIX LU LIPS- Gross FI BoF- RTGS Further CBs: DK, PL 2

3 The progress of the project (3CB perspective) Overall plan on schedule no major difficulties Functional scope listed in the User Detailed Specifications fully respected Functionality of version 2.0 is frozen since July 2005 Next version will bring corrections, clarifications and missing parts only Main activities in the functional area Focus now on functional pre-tests of developed modules Start of 3CB internal acceptance testing in October 2006 Main activities in the development area Final development of modules and error correction from functional testing Main activities in the infrastructure area Set-up of host infrastructure Installation of the internal 3CB network and SWIFTNet infrastructure Main activities in the migration area Support of participating Central Banks Preparation for Level2 acceptance testing (from 1 February 2007 on) Preparation of 3CB operational and support organisation (after going-live) 3

4 The progress of the project (BBk as user) Separate BBk project: Migration from RTGS plus to the SSP The Bundesbank as participant in TARGET2 Contribution at political level (eg legal framework) Adaption of technical interfaces (eg for payments) Getting ready for TARGET2 help desk services towards German banks Preparing the RTGS plus participants for their migration to the SSP In Operations: Personal and technical separation between BBk as user and BBk as SSP service provider 4

5 The importance of TARGET for German credit institutions Share of national TARGET components by volume (cross-border and national) 175 RTGS plus participants TOP 10 (volume) includes 7 German banks Other * 33.7 % DE 47.0% TOP 10 (value) includes 5 German banks FR 5.7 % IT 13.6% * Other: AT, BE, DK, ECB, ES, FI, GR, IE, LU, NL, PL, PT, SE, SL, UK 5

6 TARGET2 migration First group Second group Third group Fourth group 19 November February May September 2008 Germany Belgium Denmark Latvia Finland Estonia Lithuania France ECB Luxembourg Ireland Greece Malta Netherlands Italy Austria Portugal Poland Slovenia Spain Cyprus Timeframe for the first group window For contingency purposes only Test of the SSP and the participating central banks February to April 2007 User tests (banks, CSDs, retail/card systems, CBs) Technical connection First half of May 2007 Functionality May June 2007 Country-specific test scenarios July August 2007 Business day related test scenarios September October 2007 Preparation for production First half of November

7 The current RTGS plus structure credit institution credit institution credit institution Non-banks + credit institutions TARGET RTGS plus SWIFTNet FIN Y-copy Payment processing SWIFTNet InterAct/Browse Information and Control System (ICS) Customer access mechanism Clearstream RTGS accounts (bookings and holding liquidity) Liquidity bridge home accounts 7

8 The German migration first step from 19 November 2007 credit institution Clearstream credit institution Non-banks + credit institutions Payments module of the SSP SWIFTNet FIN Y-copy SWIFTNet InterAct/Browse Customer access mechanism Payment processing Information and Control Module (ICM) RTGS accounts (bookings and holding liquidity) Liquidity bridge home accounts 8

9 The German migration second step until the end of 2011 credit institution Clearstream credit institution Nonbanks Payments module of the SSP SWIFTNet FIN Y-copy SWIFTNet InterAct/Browse Customer access mechanism Payment processing RTGS accounts Information and Control Module (ICM) H A M Cash Management System 9

10 The advantages of TARGET2 for an RTGS plus participant RTGS plus offers already a highly developed RTGS functionality Processing of payments Integral payment processing among EU TARGET participants Debiting the account of another direct participant via MT 204 Liquidity control One single account for EU-wide payment processing Liquidity pooling - virtual account or consolidated information Advanced liquidity management features Use of new SWIFT XML standards for cash management Ancillary systems Easier remote participation in EU ancillary systems Benefiting from an improved night-time settlement of SSS Service level High resilience against wide-area disasters 10

11 TARGET2 Cooperation is key Cooperation at European level TARGET Working Group Cooperation at domestic level Coordination group chaired by Bundesbank Examples for common activities in the German banking industry Achieving a common view on TARGET2 functionalities Preparing the migration strategy for ancillary systems in Germany Compliance of TARGET2 with other projects in payments Cooperation at institutional level Use of common infrastructure (eg SWIFT service bureau) Using another bank as access to TARGET2 11

12 Service level Today: RTGS plus participants benefit from a high service level in Germany In future: Most advanced features everywhere available Technical harmonisation Cost savings: standardised SWIFT services, consolidation of backoffice activities but competition gets stronger! Harmonised procedures as basis for pan-european payment products Stronger competition in the field of correspondent banking / indirect participants Harmonised prices all over Europe Degression of fees: benefit for large-scale providers But: not unfair, otherwise: higher cost per item 12

13 Pricing Ceteris paribus: For domestic payments increase of prices compared with RTGS plus From a degressive scale with Euro in RTGS plus to a degressive scale with Euro in TARGET2 But: For cross-border TARGET payments decrease of transaction fees And: Further reduction for TARGET2 transaction fees under discussion Specific advantages of TARGET2 (eg towards EBA/EURO1) Real-time settlement of payments without any credit risk Settlement (also of ancillary systems) in central bank money Several possibilities for effective liquidity management Reachability of all credit institutions in the EU Fair and open access 13

14 The variety of participation from the German perspective (I) Legal view Expectations for Germany RTGS account Bank One direct participation Slightly more participants but with less foreign banks RTGS account RTGS account RTGS account Pooling Bank Branch Subsidiary Banking group with multiple RTGS accounts Only little interest 14

15 RTGS account The variety of participation from the German perspective (II) Bank branch Subsidiary Bank Legal view One direct participation plus indirect participants/ listed (=addressable) BICs Expectations for Germany Strong use like today (app. 8,500 BICs) RTGS account Bank Branch Subsidiary Banking group with one direct participant and various indirect participants / listed (=addressable) BICs being able to directly send/receive payments Strong use of bigger RTGS plus participants like today 15

16 The settlement of ancillary systems in Germany Six generic settlement procedures provided by the PM via the ASI Current model Clearstream Future model Eurex EEX Retail payment system 1 Liquidity transfer for integrated model 2 Real-time settlement in PM accounts and AS technical account Real-time settlement X X 3 Bilateral settlement on PM accounts Daytime settlement X X 4 Standard multilateral settlement 5 Simultaneous multilateral settlement 6 Settlement on dedicated liquidity accounts Nighttime settlement Day - and nighttime settlement Transitory settlement PHA X 16

17 Outlook: Migrating Europe to TARGET2 TARGET2 is a common task of the Eurosystem Cooperation of the 3CB essential Strong migration support by 3CB to CBs (and banks) Technical workshops Ancillary System Interface Application-to-application Phases of the business day Consultation on change-over activities and SWIFT messaging profile Guidelines on routing / mapping Sample files for end-of-day data Specific training programs, inter alia, for ICM use 17

Single Euro Payments Area

Single Euro Payments Area Overview SEPA (Single Euro Payments Area) is a European payments initiative which aims to create one single, integrated, standardised payments market in Europe. It is an area