For the past year, the Bundesbank only reported a black zero instead of a profit.
(Photo: Blatterspiel/Jan Huebner)
Frankfurt Due to losses from the bond purchase program of the European Central Bank, the Bundesbank could be dependent on an injection of money from Berlin, according to the Federal Audit Office. For the past year, the Bundesbank only reported a black zero instead of a profit.
The background to this were costs of one billion euros for risk provisioning. It had become necessary because the drastic interest rate hikes in the euro zone are reducing the value of the bonds purchased as part of quantitative easing.
“The Bundesbank’s possible loss volumes are considerable and could therefore make it necessary to recapitalize the Bundesbank with budget funds,” writes the Federal Court of Auditors in a report to the Bundestag’s Budget Committee. The Treasury said it did not share that conclusion.
In March, the Bundesbank stated that the losses are likely to worsen in the coming years and may not be fully covered by the provisions already made. They amounted to 19.2 billion euros at the time.
At that time, the currency watchdogs declared that the losses should be carried forward and offset by future profits. This would not require a capital injection from the state.
Overall budgetary responsibility at risk
The Federal Court of Auditors, meanwhile, is of the opinion that such deficits may not be acceptable – and the federal government should plan accordingly. The risks “could place a considerable burden on the federal budget in the event of damage, and in extreme cases they could jeopardize the overall budgetary responsibility of the German Bundestag.”
The auditors doubt that “the Bundesbank could in any case bear the losses independently”, as stated in the report. “Because not only the extreme case of the exit of a large member state from the monetary union could lead to negative equity at the Bundesbank. In view of their magnitude, the ongoing monetary policy activities also harbor the risk of negative equity at the Bundesbank.” The Financial Times first reported on the analysis by the Federal Audit Office.
The Ministry of Finance “comes to a different assessment of risks from the Bundesbank’s monetary policy activities for the federal budget than the Federal Court of Auditors,” it said in a statement. “A relevant burden on the federal budget” is “very unlikely.”
When asked, the Bundesbank stated that the Bundesbank’s balance sheet would probably be significantly burdened in the future by the rapid and sharp rise in interest rates in connection with the large bond portfolios. In 2023, the financial buffers would probably still be sufficient. After that, the charges could actually temporarily exceed the buffers.
Bundesbank says: Balance sheet is solid
However, the Bundesbank rejected the assumption that a recapitalization by the federal government would then be necessary: In this case, the Bundesbank would report loss carryforwards, which it could offset with the help of future profits.
Even if a loss is carried forward, the Bundesbank’s balance sheet is solid. It owns a considerable amount of its own funds, including valuation reserves. Bundesbank President Joachim Nagel said in the autumn that the state would not have to inject additional capital.
The ECB and the national central banks of the euro countries had launched bond purchase programs worth billions in recent years to strengthen the economy and mitigate the consequences of the corona pandemic. However, the high bond holdings are currently yielding only low interest.
On the other hand, as part of the ECB interest rate turnaround, the euro watchdogs now have to pay the commercial banks high interest rates again for their deposits at the central bank. The Bundesbank had already been in the red for seven years in the 1970s.
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