First, the smooth functioning of the settlement of cross-border payments, mainly performed through the TARGET system, allows banks to trade safely throughout the euro area. Second, the swift acceptance of euro area indices (EONIA and Euribor) forms a common basis for pricing. The experience with TARGET demonstrates the importance of the market infrastructure in allowing arbitrage to operate effectively.
The unsecured market can rely entirely on TARGET for settlement, while no similar integrated system exists for the clearing and settlement of securities and for managing collateral at the cross-border level, relevant for repo transactions and for all securities transactions in general. For instance, there are currently 22 securities settlement systems in the euro area, facing increasing demands for consolidation.