What are TARGET balances?

24 July 2025

From time to time you may have read in the news that some euro area countries have large negative TARGET balances (liabilities), while others have large positive ones (claims). There are all kinds of theories as to what this might mean. But what actually are these balances?

What is TARGET?

The TARGET (Trans-European Automated Real-time Gross settlement Express Transfer) system combines several financial market infrastructure services: T2 (for settling payments), T2S (for settling securities) and TIPS (for settling instant payments). Central banks and commercial banks use TARGET to settle transactions in euro and move money safely and easily between each other, both within countries and across borders. This is essential for the economy to function.

Both central banks and commercial banks have accounts in TARGET.

Read more about T2 and TARGET Services.

What are TARGET balances?

In an integrated market money is moving all the time, including across borders. Each and every euro starts its journey in one or other euro area country or at the ECB but it does not necessarily stay there.

The net flow of money between two countries (in other words the total received minus the total sent) is recorded on the balance sheets of the national central banks of the respective countries, regardless of whether the transfer was initiated by a commercial bank or the central bank. TARGET balances are the accumulation of these flows over time. The ECB also sends and receives money across borders during the implementation of its monetary policy, so it also has its own TARGET balance.

To avoid each euro area central bank having a separate balance with each of the other euro area central banks and with the ECB, at the end of every day all bilateral balances across all TARGET Services are simplified as one single balance with the ECB.

In short, if banks in a given country have sent more money in cross-border transactions through TARGET than they have received through it, the central bank of that country will have a negative balance. If the banks have received more than they have sent, then the central bank of that country will have a positive balance. If payments out and payments in are exactly equal, then the TARGET balance for that central bank will be zero.

Why do banks send money to banks in other countries?

Central banks and commercial banks make cross-border payments to each other via TARGET:

• to pay for goods, services or financial assets coming from another country, either for themselves or on behalf of their customers;

• to transfer money across borders on behalf of their customers (e.g. remittances);

• when they lend money to each other;

• during the implementation of monetary policy (e.g. open market operations such as asset purchases that could entail cross-border settlement);

• for selling and buying financial securities in a cross-border context.

Why is a positive TARGET balance referred to as a claim and a negative balance as a liability?

This has to do with accounting and balance sheets, so to understand this we must bear two things in mind.

1. The euro area has one currency, but because it is made up of multiple countries there is no single central bank with one balance sheet for the euro. Instead, the central bank in each country has its own balance sheet.
2. When a central bank issues money for the first time, this money is recorded on the bank’s balance sheet. The money is recorded on the liability side of the balance sheet (as a deposit) while the assets (or claims) corresponding to the money created are recorded on the asset side (e.g. as a loan).

When money moves between euro area countries via TARGET, the central bank of the country receiving the money registers this money on its balance sheet as an additional liability. But only the liability moves: the asset stays on the original balance sheet.

For example, if euros originally issued in Italy end up in Germany, then from an accounting perspective the German central bank has an additional liability (the money) while the asset stays with the Italian central bank. This means the balance sheets no longer balance: the German central bank needs to add a balancing item to reflect the fact that there are now more euros on its balance sheet than it originally created, while the Italian central bank needs to add a balancing item to reflect the fact that it has fewer euros on its balance sheet than it originally created. This balancing item – which is called the TARGET balance – is a claim (or asset) for the Deutsche Bundesbank and a liability for the Banca d’Italia.

But in a currency union like ours, there is of course no distinction between a euro issued in one country and a euro issued in another. That euro had to originate somewhere but does not need to stay in the same place. It is an essential aspect of any currency union that the currency can move from country to country, freely and easily.

Why did TARGET balances increase during the financial crisis?

Commercial banks usually lend money to each other via the money market. When the financial crisis hit in 2008, trust evaporated and banks became less willing to lend to each other. This caused money market interest rates to increase. Commercial banks in countries perceived to be more vulnerable were especially affected. When money market rates diverge from the key ECB rates, monetary policy becomes less effective. The ECB and the euro area national central banks therefore stepped in to ensure the smooth transmission of monetary policy across the euro area.

Commercial banks were able to borrow as much money as they needed from the central bank against eligible collateral. A lot of this money was used to replace cross-border market-based funding that had dried up. For example, some of the central bank money borrowed by commercial banks in countries perceived to be more vulnerable was used to repay funds lent by commercial banks in countries perceived to be less vulnerable. So, between 2008 and 2012, TARGET balances grew because of the large amount of money that had been created and that crossed borders on a net basis.

TARGET balances generally increased again from 2015 up until the late summer of 2022, although for different reasons. This was because of monetary policy decisions taken by the ECB, together with all euro area national central banks.

What did the ECB and euro area national central banks do from 2015 that contributed to bigger TARGET balances?

In 2015 the Governing Council introduced a new programme – the asset purchase programme – as part of a package of measures designed to support the return of inflation to levels in line with its inflation target at a time when inflation had been persistently below target. Later, in March 2020, following the outbreak of the COVID-19 pandemic, the ECB introduced the pandemic emergency purchase programme (PEPP) to counter disinflationary risks and risks to the monetary policy transmission mechanism. As part of these programmes, the central banks in each euro area country bought various assets across borders in return for money. This meant that the total amount of money rose again, but this time the increase was driven by the Eurosystem (i.e. the ECB and the euro area central banks).

Often the assets that are bought by a central bank are held by investors in another country – including countries outside the euro area – who typically have bank accounts in a euro area financial centre such as Frankfurt, Luxembourg or Amsterdam.

So, for example, let’s imagine that under the asset purchase programme the Spanish central bank bought a bond held by an investor whose bank account was in Frankfurt. To get the money to the seller’s German bank account the Banco de España would have to make a cross-border transfer through TARGET. The seller’s bank account would be credited and the German central bank would register an increase in its TARGET claim, while the Banco de España would register an increase in its TARGET liability.

Since many assets were purchased from investors with German bank accounts, money flowed into Germany. The money then remained in countries like Germany because the return on other safe investments (such as domestic government bonds) was relatively low. Because of this accumulation of money, the Deutsche Bundesbank’s TARGET claim rose. At the same time, the liabilities of countries sending money increased.

In addition, also as a response to the pandemic crisis, the Eurosystem expanded the financing provided to credit institutions via TLTRO III (the third series of targeted longer-term refinancing operations), which increased the liquidity available overall and thus created an opportunity for the further expansion of TARGET balances.

So increasing TARGET balances are nothing to worry about?

TARGET balances can be an important indicator of what is happening in the economy (they show the direction in which money is moving around the euro area). However, their drivers may change over time and it is, after all, a key feature of a currency union that money flows across borders.

TARGET balances can also sometimes signal that something is wrong (e.g. if lots of money is flowing out of a particular country because of concerns about its financial situation). If this is the case, TARGET balances will not be the only signal that there is a problem.

The expansion of TARGET balances across countries up until August 2022 was principally the result of monetary policy measures designed by the ECB to support the return of inflation to levels in line with the Governing Council’s inflation target and ensure the smooth transmission of monetary policy. It was not the result of financial stress.

Why did TARGET balances start to decline from the late summer of 2022?

The total TARGET balance – the sum of all TARGET claims or, equivalently, all liabilities – peaked towards the end of August 2022, at roughly €1.9 trillion. Operations associated with TLTRO III started to reach maturity from September 2022 and, in October 2022, the ECB announced a recalibration of TLTRO III to ensure consistency with broader monetary policy normalisation. This recalibration resulted in large repayments from banks, which contributed to reducing the level of excess liquidity in the banking system, leading in turn to lower TARGET balances. The Eurosystem also discontinued reinvestments under the asset purchase programme from July 2023. In contrast to net asset purchases, the maturing of securities issued by entities located in the same country as the national central bank holding the bonds does not immediately give rise to cross-border transactions. For instance, the maturing of securities issued by a national central bank’s domestic government results in payments from that government to the national central bank. As a result, the non-reinvestment of maturing securities under the asset purchase programme does not directly affect TARGET balances. However, it may do so indirectly via the purchase of new bonds that governments need to issue to finance redemption payments in the case of non-domestic entities. At the end of 2024, the total TARGET balance stood at around €1.6 trillion.