Published on 9th November 2020 (by

On 20th October the European Central Bank’s main Euro payments system went down for 8 hours – so lucky it was a Friday.

TARGET2 was down from 14:40 CET until 22:30 CET, supposedly because of the failure of a network device, and both the hot and warm stand-by systems failed to take over. A news blackout was successfully mounted since this should have been a reputational disaster, TARGET2 being the glue that holds the Eurosystem together. Instead the ECB has got away with blaming the problem on a third-party vendor, when the larger issue is why the disaster recovery approach failed.

The ECB was extremely lucky that this occurred on a Friday. TARGET2 runs on the Single Shared Platform or SSP. Normally the SSP has its end-of-day processes from 18:00-18:45 CET, is fully closed for just 15 minutes, and has its start-of-day processes for the following business day between 19:00 and 19:30. Because it was a Friday, the ECB had the whole weekend to gets things in order and prepare for Monday.

Friday’s end-of-day SSP processes were completed at 03:00 CET on Saturday – a reputational disaster for the ECB, but not an accounting meltdown. Payments and other bookings carrying Friday’s date were offered up to the SSP after 24:00 CET. These should normally be rejected as “stale” entries. They weren’t in this case. This is another weakness in the SSP that, in this eventuality, has worked to the ECB’s advantage. When RBS Group in the UK and Ireland had a major problem a few years ago it was precisely because a control application failed: batches of accounting entries were then “stale” when offered up to the accounting system and were rejected.

Of equal interest are the balances owing between the 25 TARGET2 participants (the ECB, the 19 Eurozone national central banks, and 5 non-Eurozone national central banks of Bulgaria, Croatia, Denmark, Poland and Romania). It has become a hot topic that these balances do not really settle at the end-of-day in the way customary in a payment system, which is by a participant clearing the balance off its account to zero.

The residual balances are enormous but this is only what is published by the ECB – for the brief period of TARGET2’s overnight closure on the final business day of the month. The ECB’s reports do not show the original balances outstanding but ones that have already been netted down twice.

What the balances are between 07:30 CET and 18:45 CET – “intraday” in the jargon – is uncertain, as is their amount on any of the other 20 or so business days during the month than the one upon which the ECB reports. Had the TARGET2 outage occurred on any weekday but Friday, the ECB would not have had the time to manage its orderly construal of the balances, and the original, unnetted balances might have come out into the open. They can only be larger than what is disclosed. The open question is by how much. The doubly-netted figures are already colossal. Divulging the original figures is unthinkable and has been avoided by a chance of the calendar. Friday 20th October should in future be celebrated at the ECB as “Narrow Escape Day”. Lucky, lucky, lucky…