After the third round of zeros in a row, the federal government has to adjust to more years without a Bundesbank profit. "In the coming years, the burdens on the Bundesbank's profit and loss account are likely to increase significantly," said Bundesbank President Joachim Nagel on Wednesday in Frankfurt. For the 2024 financial year, there could be a loss on the balance sheet for the first time since 1979.
As in the two previous years, the bottom line for 2022 was zero. In order to avoid a loss, the Bundesbank had to use around one billion euros from its risk provisions. "In 2022, the Bundesbank had to bear particular financial burdens," Nagel said. "The rise in US capital market interest rates was one reason for this. It led to a drop in the value of our foreign exchange reserves. The rise in key interest rates in the euro area was a second reason," explained the Bundesbank President.
"According to various calculations, our risk provisions should still be sufficient in the current year. However, the burdens will probably exceed our financial buffer in the years to come," said Nagel. "In this case, we will report a loss carryforward."
Risk provision of 19.2 billion euros
Bundesbank board member Joachim Wuermeling emphasized that the Bundesbank's balance sheet was "on rocky ground", which made it easier for the institution "to cope with losses over a certain period of time".
In recent years, the Bundesbank had set aside billions for possible risks from the common monetary policy led by the European Central Bank (ECB). At the end of last year, this risk provision still amounted to 19.2 billion euros.
The euro currency guardians have bought government and corporate bonds on a large scale in recent years to stimulate the economy and to mitigate the consequences of the corona pandemic. Many of these papers yield relatively low interest rates, but at the same time the central banks have to pay commercial banks sharply increased interest rates for parked funds.
The ECB will not pay out profits in 2022
The ECB, for its part, also had to compensate for a loss from ongoing business through its risk provisions in 2022, so the bottom line was zero there too. The result: A profit distribution from the ECB to the national central banks, from which the Bundesbank usually also benefits, was canceled for 2022.
In the fight against persistently high inflation, Nagel does not see the ECB as yet having reached its goal. "One thing is clear: the rate hike announced in March will not be the last," affirmed Nagel. After five increases in a row since July, the key interest rate in the euro area is now 3.0 percent. For the ECB meeting on March 16, the monetary watchdogs have announced another rate hike of 0.5 points.
In the medium term, the ECB is aiming for price stability in the euro area with an inflation rate of two percent. This target has been a long way off for months. Although inflation slowed again in January, consumer prices in the currency area were still 8.6 percent above the level of the same month last year.
According to the current status, he considers “even higher key interest rates to be necessary so that the inflation rate returns to our two percent target in a timely manner,” said Nagel. Higher interest rates make loans more expensive. This can slow down demand and counteract high inflation rates.
For years, the Federal Ministry of Finance had traditionally planned a Bundesbank profit of 2.5 billion euros in the federal budget. In 2019, the then head of department and current Chancellor Olaf Scholz (SPD) was able to look forward to the highest Bundesbank profit since the financial crisis: 5.85 billion euros.
Bundesbank on the 2022 balance sheet Bundesbank on the 2021 balance sheet Bundesbank annual reports Bundesbank profits since 1957 Time series Key interest rates of the ECB ECB purchase programs ECB on the 2022 balance sheet National central banks’ shares in the subscribed capital of the ECB Bundesbank on the ECB’s capital key Federal Statistical Office on inflation in Germany Eurostat on inflation in the euro area Federal Ministry of Finance on the federal budget 2023