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The ECB has posted a loss for the first time in almost twenty years. And not just a little bit. The bank fell into the red by 1.3 billion euros.
In fact, the European Central Bank’s (ECB) loss was much greater. The difference between income and expenditure amounted to 7.9 billion euros. But because the bank completely emptied its reserve pot of 6.6 billion euros, the net figure could be a lot lower. That reserve fund was also used last year. Thanks to this intervention, the ECB was then able to publish a zero result.
The mega loss will have no influence on monetary policy, the bank says. The results of a central bank differ from those of other banks, because the ECB itself controls the money press. In principle, the bank can print as much money as necessary. But a recapitalization is not on the agenda for the time being. The ECB expects that future losses will be compensated by the return of profits in a few years.
Bonds
Yet the losses are certainly not meaningless. The most important consequence is that the ECB cannot distribute profits to its shareholders, the national central banks. The National Bank of Belgium (NBB) is also expected to fall deeply into the red as a result. A loss of 580 million euros has already been recorded for the 2022 financial year. Then the NBB announced that profits are not expected to be made again until 2027. Until then, the result will not contribute to the government budget.
The ECB losses arose because the bank has implemented a series of interest rate increases to combat inflation. As a result, she had to pay much more interest, while the additional income resulting from the higher interest rate did not keep pace with expenses. This is because the ECB’s assets (mainly bonds) have long maturities and fixed interest rates. In 2022, the ECB received 900 million euros in interest, in 2023 it had to pay 7.2 billion euros. The additional interest costs were largely related to balances in the context of the so-called target system, with which the euro zone member states settle mutual money transfers. Compensation on deposits, including from commercial banks, contributed to a lesser extent to the higher interest costs. Higher personnel costs cost an additional 24 million, a piece of cake compared to the other costs.
Financially robust
The ECB’s performance has systematically deteriorated in recent years. In 2019 there was a profit of 2.4 billion euros, the following year 1.6 billion was earned. In 2021 this amounted to 192 million euros, followed by a zero result the following year. The bank warns that the result will remain below zero in the coming years. When money will be earned again largely depends on interest rate developments. “But due to the capital and capital gains, which together amounted to 45.8 billion euros at the end of 2023, the bank is financially robust.” The ECB says the losses do not pose a threat to its day-to-day operations and the implementation of its mandate to fight inflation.
