Court of Auditors warns
Do the taxpayers have to save the Bundesbank?
6/26/2023, 5:03 p.m
The Bundesbank is likely to show substantial losses on its balance sheet in the coming years. The capital buffer built up in recent years could soon be used up. The Federal Court of Auditors sees an expensive bill coming up for the federal government. Economists and the Bundesbank themselves are reluctant.
The Federal Court of Auditors warns of a billion-dollar risk for the federal budget from a rescue operation that may be necessary for the Bundesbank in the future. There is a risk that the losses of the German central bank will exceed its capital buffer in the coming years and that the federal government will have to “recapitalize” the bank with tax money. This emerges from a report by the auditors, from which several media quote. Accordingly, the Federal Court of Auditors also criticizes the fact that the Bundestag and the Federal Government do not monitor closely enough whether the Bundesbank is adhering to the rules laid down by the European Court of Justice in the bond purchase programs.
As a result of the turnaround in interest rates, many central banks are currently posting high losses. Central bankers around the world have raised interest rates to curb inflation. Low-interest bonds, many of which the central banks of the Eurosystem bought when inflation was low, are losing a lot of value as a result. In addition, the central banks are once again paying interest to commercial banks on their deposits. The loss of the Swiss National Bank last year was particularly spectacular. The federal monetary authorities made a minus of 132 billion francs (135 billion euros) due to falling share and bond prices and the appreciation of the franc. The Bundesbank ended the past year with a black zero, i.e. neither profit nor loss.
However, the Bundesbank also expects losses for this and the coming years. To do this, it has built up a capital buffer of almost 20 billion euros. The Federal Court of Auditors is now warning of the possibility that this sum could be used up if the Bundesbank is now making losses for several years. The Bundesbank’s equity could then become negative.
Bundesbank President Joachim Nagel has repeatedly made it clear that fighting inflation is his priority. He doesn’t want to take profit or loss in the balance sheet into account. He, too, has not ruled out that the Bundesbank could completely use up its capital buffer. However, that doesn’t mean that it needs money from taxpayers, like a commercial bank that got into trouble. In this case, the Bundesbank would post loss carryforwards. That is, it replenishes its equity once it starts making profits again. Even in the case of such a loss carryforward, the balance sheet is solid, according to the Bundesbank. It owns a considerable amount of its own funds, including valuation reserves.
Ultimately, central banks create money themselves, for example by buying bonds. Unlike commercial banks, they are not companies that could become insolvent. However, some companies believe sustained losses on depleted equity could undermine a central bank’s credibility and hence its ability to fight inflation.