Published by Global Banking & Finance Review®
Posted on March 6, 2025
6 min readLast updated: January 25, 2026
Add as preferred source on GoogleThe ECB narrowly avoided a major financial crisis by resolving a payment system crash within 10 hours, preventing widespread disruption.
By Francesco Canepa and Lefteris Papadimas
FRANKFURT/ATHENS (Reuters) - The European Central Bank's payments crash last week meant salaries and welfare funds were delayed for thousands of people. It could have been much worse.
If the same disruption had struck, or persisted into, the following day - the end of the month, and payday for many public-sector workers, pensioners and welfare recipients - the mayhem could have hit millions of people and businesses, and strained the banking system.
"If it had lasted until Friday, there would have been big risk-management questions for banks," said Alistair Milne, a professor of financial economics at Britain's Loughborough Business School. "Bank risk managers would have to decide: Are we willing to credit the customer account on the trust that the money will eventually turn up?"
Reuters can construct the most detailed account to date of the breakdown of the euro zone's main payment system, based on interviews with a dozen people familiar with the day's events including central bank officials, bankers and brokers, and a review of the ECB's messages to market participants.
When the system went down on Thursday, the chaos that descended in the 10 hours it took to identify and fix the problem blocked the welfare payments of more than 15,000 mostly elderly and poor Greeks, a large number of salaries and pensions in Austria, plus several financial trades.
At the heart of the escalating turmoil was a piece of malfunctioning hardware, but it took hours for the ECB's technicians to spot the problem after an initial, erroneous diagnosis of database issues, according to the ECB messages and officials at the ECB and three other euro zone central banks.
This forced central bank staff across many euro zone countries to work throughout the night to fix the defective equipment and clear a backlog of transactions in time for payday, according to officials who like the other sources requested anonymity to discuss this sensitive matter.
"A hardware failure is excusable, but not having a backup that can kick-in instantaneously in case of problems is not," said Markus Ferber, a member of the European Parliament who sits on the committee that oversees the ECB. "Critical infrastructure needs a backup - the ECB should know that."
An ECB official told Reuters the affected hardware, which he declined to identify, did have multiple backups and the bank was analysing why they didn't kick in.
The ECB had recently completed an overhaul of its payment system and crisis management before this incident, the official added, as recommended in a report by consultancy Deloitte following a string of outages in 2020.
The Target payment system, which handles trillion of euros of daily transactions, is so vital to financial and economic stability in the 20-nation euro zone that the locations of its four servers are a closely guarded secret, with the ECB revealing only that they're sited in two different parts of Europe.
ECB ACTIVATES EMERGENCY CHANNEL
The situation started going south shortly after 8 a.m. Frankfurt time on Thursday when the ECB's system for settling financial trades, Target 2 Securities (T2S), crashed. The Target 2 (T2) network, which handles large payments between central banks and commercial lenders, followed suit two hours later, according to ECB updates to market participants.
Both T2 and T2S are run by the ECB with the central banks of Germany, Italy, France and Spain.
In phone calls that morning between crisis managers at the ECB and the other central banks, the blame was put on errors in the systems' shared database, which would make a transfer to a back-up version - or "failover" - impossible without copying over the same issue.
This required staff at the central banks to laboriously parse through transactions to identify the mistake while the system was offline.
At 11.30, the crisis managers activated the Target systems' emergency channel for critical payments, such as those involving foreign currencies or margin calls. This is to prevent any disruption from spilling over to other currencies or jamming the functioning of financial markets.
This process, which requires participants to submit every transaction manually, is ill-suited for the hundreds of thousands of payments that go through T2 and T2S every day.
A few dozen payments went through in that way but all others had to be placed in a queue, waiting for the problem to eventually be fixed.
It was not until the afternoon that the ECB established there was actually what it later described as a "defective hardware component" at one of the system's four locations.
Staff then began moving all transactions to the backup, or failover, shortly before 1600. The move was completed at 1715 and settlement resumed at 1800, lasting through the evening until a delayed midnight deadline, the ECB messages showed.
The officials at the ECB and three other central banks said work continued until the early morning to clear most of the transactions that had been queued up over the previous day.
PAYMENT SYSTEM THAT NEVER FAILS?
The fallout didn't stop there.
Some transactions had been cleared too late for the banks to process in time on Friday, leading to the delays of thousands of people in Greece and Austria receiving salaries, pensions and welfare payments.
Brokers were also left fuming over delayed trades, according to three market sources who declined to give details about the affected transactions. One Dutch broker told Reuters some of his clients were charged interest for money they agreed to borrow but never actually received as a result of the outage.
They were planning to seek compensation from the ECB, as is envisaged under Target rules.
Paul Harris, partner at London-based law firm Osborne Clarke, said market participants would likely find it more difficult to get compensation from a central bank than when a private firm was at fault.
"When (commercial) banks have problems with their architecture, the recriminations last for a significant period," he said. "But so far there doesn’t look to be anything like the same level of accountability here, even though the damage to market stability could have been far greater."
In a message after the event, the ECB described the breakdown as a "major incident" that had "adverse consequences for market participants as well as for their clients" and said it had started a "thorough analysis" of the episode.
The ECB's latest annual report shows T2 was available at all times in 2021, 2022 and 2023. In 2020 it was up and running 99.46% of the time - below the targeted 99.7%.
"A payment system that never fails may not be buildable," said Aaron Klein, a senior fellow at U.S. think-tank the Brooking Institution who specialises in financial technology. "And, if it is, it may be more costly than tolerating a few hours of delay."
(Additional reporting by Sinead Cruise and David Milliken in London, Leika Kihara in Tokio, and Howard Schneider and Pete Schroeder in Washington; Editing by Elisa Martinuzzi and Pravin Char)
The crash was primarily due to a malfunctioning hardware component, which took hours for technicians to identify after an initial misdiagnosis.
It took approximately 10 hours to identify and fix the problem, with settlement resuming by 1800 Frankfurt time.
The failure delayed salaries and welfare payments for thousands, particularly affecting elderly and low-income individuals in Greece and Austria.
The ECB activated an emergency channel for critical payments and worked throughout the night to clear a backlog of transactions.
The Target payment system is crucial for financial stability in the euro zone, handling trillions of euros in daily transactions.
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