By Tom Fairless

FRANKFURT -- The European Central Bank blamed a software defect for a disruption to the region's main wholesale payment system last week that left banks unable to process transactions and securities trades for almost 11 hours.

The outage on Friday paralyzed the ECB's Target2 payments system, which provides the plumbing that allows money to flow across the bloc's single market. Owned and operated by the region's central banks, it processes around EUR2 trillion in transactions a day, equivalent to $2.35 trillion and to around a fifth of the eurozone's annual economic output.

The "major incident" took place at about 2:40 p.m. on Friday, according to the ECB. After a backup system failed, commercial banks couldn't process transactions through about 1:20 a.m. the following morning. While European businesses and individuals could continue to make payments, the money wasn't landing where it should.

The glitch also affected a parallel ECB system, Target2-Securities, which helps to process more than EUR1 trillion in bond and stock trades each day across the region. While the settlement of securities transactions remained available, funds couldn't be transferred to or from the system for several hours, the ECB said.

"It's a bit scary. Eleven hours is really, really long for such a critical" piece of infrastructure, said Nicolas Veron, a senior fellow at the Peterson Institute for International Economics in Washington, and at Bruegel, a Brussels-based economic-policy think tank.

"It's manageable, but not reassuring, and a bit embarrassing for the ECB, " Mr. Veron said.

Banks were updated on the outage through the afternoon and evening. Eventually engineers switched operations to a parallel system operated by another European central bank. The two systems are managed by the German and Italian central banks.

After a brief investigation, the ECB on Wednesday blamed a software glitch in a third-party network device used in the internal network of the central banks operating the Target2 system. The ECB had previously ruled out a cyberattack.

European financial markets have grown choppier as the continent is engulfed by a second wave of the Covid-19 pandemic. There were also outages last week at Euronext NV, one of the region's biggest exchange operators. Euronext blamed those interruptions on a technical problem affecting a so-called middleware system used to manage the storage of data.

Target2 has experienced technical problems in the past, though last week's incident appears to be the most severe in recent years. Outgoing messages from the payments system were delayed in July 2019, and a failure following an upgrade to Target2's technical infrastructure hindered settlement processing for around 40 minutes in November 2018, according to annual reports. A problem with the sending and receipt of payments in December 2017 was resolved in around 25 minutes, though some participants reported further payment delays.

Prolonged outages in major payment systems are relatively rare. The Bank of England launched an investigation in late 2014 following a 10-hour outage to its own automated payment system.

The ECB said Wednesday it has "taken measures to prevent this from happening in the future and will discuss it with the vendor." The payment system opened and closed normally on Monday and Tuesday this week, it said.

"Market participants have confirmed that they have resumed normal business operations and only a small number of reconciliation investigations is still ongoing," the central bank said.

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Joe Wallace

contributed to this article.

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

10-28-20 1156ET