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The German central bank has burnt through the entire €19.2bn of provisions it built up to cover financial risks as well as most of its €3.1bn reserves to absorb the huge losses it made last year due to higher interest costs.
The Bundesbank warned it expected to make another “significant” loss this year, exceeding the €700mn of remaining reserves, as it reported on Thursday that it would have made a €21.6bn loss if it had not drawn down the funds set aside to cover financial risks.
The sharp downturn in the German central bank’s performance is embarrassing for one of the country’s most respected institutions, especially as it has been aggravated by the vast bond-buying programme of the European Central Bank, which it opposed.
Last year, the German audit office said the Bundesbank may require a state bailout to cover its losses. But the central bank’s president Joachim Nagel said it planned to carry forward any losses to be offset by future profits, adding: “The Bundesbank’s balance sheet is solid.”
Nagel said the central bank “can bear the financial burdens” as it had “considerable assets that are significantly larger than its liabilities” including €200bn of valuation reserves, accumulated from rises in the value of the securities it bought.
The ECB on Thursday unveiled a €1.3bn annual loss, its first for almost two decades, reflecting the impact of higher interest rates paid to national central banks.
The ECB also said it expected to make further losses after burning through its remaining €6.6bn of provisions, but that any losses would be carried forward against future profits, avoiding any need for a recapitalisation.
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