Germany’s Bundesbank central bank took a loss on its balance sheet last year for the first time since 1979, after rapid changes in eurozone interest rate policy depleted the bank’s reserves.
The Bundesbank lost around €19.2 billion ($20.1 billion) in 2024, the central bank reported on Tuesday, and warned of possible further losses in the coming year, although the size of any losses are expected to be smaller.
“The peak of the annual burdens has probably been passed,” Bundesbank president Joachim Nagel said at a presentation in Frankfurt.
Nagel had already predicted lean years when presenting the balance sheet a year ago, and warned that the central bank won’t be contributing to government revenue: “We do not expect to be able to distribute any profits for some time.”
For years, Germany’s Finance Ministry had routinely budgeted for a Bundesbank profit of around €2.5 billion, although that has shifted in the past couple of years amid inflation and fluctuating interest rates.
Nagel said the Bundesbank intends to offset losses with future profits in the coming years.
In the 2023 financial year, the Bundesbank narrowly avoided making a loss, but only because it was able to fall back on provisions worth billions of euros, and the cost of the rapid interest rate turnaround almost used up the buffers.
Entering 2024, the Bundesbank had only €700 million in reserves to cushion losses.
Starting in 2022, the European Central Bank (ECB) rapidly increased interest rates in the eurozone in order to get a grip on high inflation. Inflation is now far from record levels, which is why the ECB has lowered key interest rates in the eurozone again.
ECB woes also a factor
Higher interest rates on the financial markets led to rising interest expenditure on the part of the central banks, with interest income failing to keep pace.
At the same time, many long-dated securities such as government and corporate bonds, which the eurozone central banks have been buying on a large scale for years as part of the common monetary policy, are yielding comparatively low interest rates.
The ECB itself reported its second consecutive year of losses for 2024 and the highest loss in its more than 25-year history at around €7.9 billion.
Due to the losses, the ECB’s usual profit distribution – including to the Bundesbank – failed to materialize once again.
Bundesbank vice president Sabine Mauderer emphasized the solidity of the Bundesbank’s balance sheet despite the losses: “The Bundesbank can bear both the current and the expected financial burdens.”
