Central Banking

Target2 'filled in' balance of payments gaps during euro crisis, NY Fed paper finds

System for managing cross-border payment imbalances smoothed impact from capital flight


Adjustment to the pullback of private capital during the euro crisis was not as harsh as expected, according to a Federal Reserve Bank of New York study, which attributes this to the workings of the eurozone's system for managing cross-border payment imbalances between regional commercial banks.

In the Balance of Payments Crisis in the Euro Area Periphery, Matthew Higgins and Thomas Klitgaard argue that this system, known as Target2, offset much of the capital flight with credits extended

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