Payment settlement system in the European Union

Poland stands on the threshold of joining the European Union. In many spheres of the economy, Polish legal regulations are being adjusted to EU standards. This process has not bypassed the banking system, especially interbank settlements. In this paper we will look at the Large Value Payment Settlement System (LVSP 1 ) – TARGET 2 , which operates in the European Union. TARGET is the European interbank funds transfer system. It is designed to support monetary policy in the euro area and promote efficient payment systems. It contributes to the integration and stability of the financial market in the area. The TARGET system only processes credit transfers denominated in euro. The system is able to process cross-border payments denominated in euro as if they were domestic payments. It allows payments, especially large-value payments (involving, inter alia, foreign exchange and money market transactions) to be made within the euro area at low cost and with security requirements. In net-type systems, a so-called netting of these payments is performed before the final settlement of the liabilities arising from the transfer of transactions into the system. Netting involves the reduction of payments or liabilities when the same settlement participant is both a creditor and a debtor. The net balance of the participant is calculated as a result of the netting, as the balance of all payments sent or received by the user [Report-, 2001, p. 45]. In RTGS systems, the settlement of payments takes place on a single transaction basis, that is, without the use of netting. In the case of gross settlement, there is individual clearing and settlement of each transaction, in contrast to net settlement, which involves the netting of mutual obligations [Report-, 2001, p. 45]. The TARGET system belongs to the class of systems with gross settlement.