TARGET2-Securities has the potential to reduce capital shortfall under Basel III rules by €33 billion, said a Clearstream survey.
These capital savings would be via reduced liquidity consumption, according to a study undertaken by Clearstream and PricewaterhouseCoopers (PwC) that has now been released.
Additional T2S benefits identified are reduced risk in the custody chain and enhanced collateral mobility to meet other new regulatory requirements designed to make the financial services sector more robust.
These benefits would be on top of the efficiency gains and cost savings associated with lower settlement fees and harmonised post-trade processes already expected from the introduction of T2S.
The capital savings could be unlocked thanks to the opportunity to pool cash accounts in T2S. Pooled cash accounts would enable participants to centralise and net off cash payment obligations associated with their settlement activity in all T2S participating markets.
A bottom-up analysis by Clearstream of millions of cross-border settlements in Germany, France, the Netherlands, Belgium and Italy showed that pooling cash settlement into a single account would reduce Clearstream’s own liquidity requirements by a daily average of 15 percent during peak settlement periods.
Transposing this to the broader settlement volumes in the Eurozone would translate into an estimated €33 billion of Tier 1 capital savings outlined in Basel III rules for all Eurozone banks.
Philip Brown, head of client relations for Europe and Americas and member of the executive board of Clearstream, said: “Our study shows … another example of the opportunities that T2S will bring if the market pulls together and mobilises around it. The potential relief on participants’ capital requirements should be a key trigger to gear up to T2S which, ultimately, will also make the market more robust.”
Thorsten Gommel, partner at PricewaterhouseCoopers, financial services consulting division in Frankfurt, said: “Despite being prepared for so many years and relatively shortly before going live, this is the first study that quantifies the benefits of TARGET2-Securities for Eurozone banks by putting it into the context of the broader regulatory agenda. Defining the right network strategy will substantially reduce liquidity consumption and capital needs.”
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