Italy Funding Panic? Target2 Liabilities Unexpectedly Soar To Record High

During the peak days of the European credit crisis in 2011 and 2012, one of the unfalsifiable indicators used by market watchers to observe the state of Italy’s banking system and regional fund flows (mostly outflows from the periphery, inflows into Germany and northern states), was the monthly Target2 balance. Positions within the Target2 system, which settles cross-border payments in the euro zone, are monitored because in a world where all other market signals are corrupt and distorted by central banks (Spanish 10Y bonds yield less than US bonds), they remain a reliable, concurent indicator of financial stress, for example when banks in a country lose foreign funding.

This post was published at Zero Hedge on Sep 7, 2016.