No distribution of profits to the federal government
There will probably be nothing more to be gained from the Bundesbank for years to come
February 23, 2024, 11:52 a.m
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The federal government should not expect any funding from the Bundesbank for the time being. In view of the interest rate increases, the central bank even expects figures to be in the red this year. The loss last year could only be prevented by dipping into reserves. But they have now been used up.
The sharp increase in interest rates by the European monetary authorities in the fight against inflation is putting a strain on the Bundesbank’s annual balance sheet. The central bank reported a balanced result again for 2023. But she only achieved this because she completely dissolved her risk provisions and reduced her reserves. The distribution to the federal government will be the same as in previous years. The Bundesbank signaled red numbers for 2024: “We assume that the burdens for the current year will again be significant. They are likely to exceed the remaining reserves,” explained Bundesbank President Joachim Nagel.
In this case, the Bundesbank will report a loss carryforward and pay it off with future profits. “We do not expect to be able to distribute profits for a long time,” confirmed Nagel. The Bundesbank was in the red in the 1970s. At that time she had been making losses for seven years. Last year, net interest income, the largest item in the income statement, was in negative territory for the first time with a loss of 13.9 billion euros.
The bottom line was that there was a deficit of 21.6 billion euros, which the central bank made up for with its financial buffers. The provisions of 19.2 billion euros were completely released and the reserves shrank to 700 million euros.
Starting in 2015, the euro zone’s monetary authorities launched trillion-dollar programs to purchase government and corporate bonds. These initially served to support the economy, and in 2020 another massive purchase program was added to mitigate the economic consequences of the corona pandemic. However, the high bond holdings are currently only yielding meager interest.
On the other hand, as a result of the interest rate turnaround, the Bundesbank and the other euro central banks will have to pay high interest to the commercial banks for their deposits with the central bank. After a series of interest rate increases by the European Central Bank, the deposit rate is now at 4.00 percent – the highest level since the monetary union was founded.