LONDON/FRANKFURT, Feb 27 (Reuters) – The European Central Bank (ECB) announced late on Thursday that it had resolved an unprecedented outage in its payment system, which had disrupted transactions likely worth trillions of euros from companies, consumers, and investors for most of the day. The malfunction occurred in the Target 2 system, which handles over 3 trillion euros ($3.12 trillion) in daily payments and financial trades, preventing transactions between banks from being processed. While regular bank customers did not immediately feel the interruption, it raised concerns about end-of-day transactions between lenders, which are crucial to the functioning of the eurozone’s economy.
The outage also caused disruptions during U.S. trading hours, according to a source at a U.S. lender. However, expectations remained that the backlog could be cleared during extended settlement hours, potentially minimizing the overall impact. Another U.S. bank confirmed it was processing backlogs without issue after the ECB restored the system. After roughly seven hours of downtime, the ECB announced around 1800 GMT that Target 2 (T2) was operating normally, although deadlines for the day’s payment flows had been postponed by several hours.
“The previous incident has been resolved and T2 has resumed normal operations,” the ECB stated on its website. Earlier, the ECB attributed the issue to a “hardware defect” and confirmed there was no “malicious (or) foul play.” Banks were instructed to keep queuing their payments throughout the day while waiting for the issue to be resolved. An emergency channel remained open for “very critical payments,” the ECB added.
The pan-European TARGET 2 Securities (T2S) platform, used for cash and securities trades across 24 depositories such as Euroclear, was also restored after being affected by a glitch in its communication channels. “T2S is operating normally and the previous incident… was resolved,” the ECB confirmed. The cut-off time for Thursday’s trade was extended by six hours to 2100 GMT. Trading sources reported that communications had been disrupted, leaving the status of trades since the outage unclear.
The issue impacted critical communications between central securities depositories (CSDs), which are essential to financial markets. Market participants typically communicate with T2S via their CSD or central bank. Michael Thomas, a partner at Hogan Lovells’ financial services team and market structure expert, warned that the episode could have significant consequences. “Where there are chains of transactions, where each leg is dependent on settlement of each other leg, a break in the chain can affect the whole series of transactions,” he explained.
“The longer the delay, the greater the impact on liquidity in the financial system, where cash cannot be realized because securities transactions are not able to settle, meaning that cash is not available for other purposes,” he added. According to the ECB’s website, past issues with the T2S system over the last couple of years were typically resolved quickly. Thursday’s outage, reported at 0730 GMT, was only resolved at around 1700 GMT.
Settlement on trades takes two working days, meaning potential disruptions may not become apparent until early next week. Central counterparties, or clearing houses, ensure that stock, bond, or derivatives transactions are completed, with the final leg of a trade, known as settlement, conducted by the CSDs. Clearstream, a CSD, stated on its website that the settlement of euro securities would be delayed. Others, including Euroclear, did not immediately respond to a request for comment from Reuters. A person familiar with the matter indicated that some Euroclear clients might experience delays in transaction processing.
($1 = 0.9607 euros)
— news from Reuters