The aggressive turn of monetary policy to fight inflation led to European Central Bank reflect losses on its balance sheet, which, nevertheless, were fully covered by accumulated reserves.

In particular, as shown by the financial statements for 2022, the ECB was forced to use 1.627 billion euros of reserves against financial risk in order to avoid registering losses, which led to zero profit. Therefore, no profits will be shared among the eurozone’s national central banks, he said.

The ECB’s actual losses were driven mainly by interest expense on the ECB’s net obligations under TARGET2, as well as write-offs of securities held in the equity and US dollar portfolios due to higher bond yields.

The size of the consolidated balance sheet of the ECB was 7.956 trillion. euro, from 8.564 trillion. euro in 2021 with a decline due to the early repayment of cheap loans (TLTRO) that its banks continued.

In other words, the sharp rise in eurozone bond yields following a 250 basis point rate hike in 2022 to fight inflation forced the ECB to lower the value of its bonds.

However, even after this move, the ECB still has €6.566 billion in reserves, a total capital of €8.9 billion (an increase of €600 million) and €36.1 billion in a “revaluation account” that is intended to cover market losses.

Many of the national central banks in the euro area are of course not so fortunate and will likely show losses in 2022, with the exception of the Bank of Greece, mainly due to the very good management of their investment portfolio.

On the face of it, unprofitable central banks are not a cause for concern, but rather a technical problem, as ING economist Carsten Brzeski points out. Central banks are unlikely to collapse as they can print money or recapitalize. On a second glance, however, he adds, in times of rate hikes and quantitative tightening, money-losing central banks are facing credibility issues and could also spark new speculation about whether the ECB should return to a “whatever the cost” approach should the turmoil resume. eurozone.