Banks and financial market infrastructures (FMIs) that are not able to fulfill their payment
obligations can be a source of financial instability. This paper develops a composite risk indicator to
evaluate the criticality of participants in a large value payment system network, combining
liquidity risk and interconnections in one approach, and applying this to the TARGET2
payment system. Findings suggest that the most critical participants in TARGET2 are other
payment systems, because of the size of underlying payment flows. Some banks may be
critical, but this is mainly due to their interconnectedness with other TARGET2 participants.
Central counterparties and central securities depositories are less critical. These findings can be
used in financial stability analysis, and feed into central bank policies on payment system access,
oversight, and crisis management.