There are many ways for the home bank to do this. One way for the home bank is to borrow the corresponding asset at the central bank in the home country. The central bank would then borrow the amount from the ECB (incurring a more negative Target2 balance), the central bank in the foreign country will complete the transaction to lend the amount from the ECB (incurring a more positive Target2 balance), to give the asset to the bank which recieved the transferred money. As you can see on average this process occured more from southern countries to northern countries. This shows the capital outflow from the PIIGS countries, which could be of great concern.
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Target2 |
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