The European Central Bank is also in a new situation when interest rates rise and the value of its bond holdings falls.
European The central bank (EKP) has warned on Tuesday that it will make a possible loss that will arise when interest rates rise on its large bond holdings.
As a result of the ECB’s bond purchases, the Eurosystem owns almost EUR 5,000 billion worth of bonds, most of which are government bonds. The background is quantitative easing and large securities purchase programs, which have inflated the central bank’s balance sheet.
As interest rates rise, the market value of these holdings decreases.
The situation of the central bank does not really come as a surprise. HS told in October about the possible losses of central banks when the value of bonds falls. At the end of October, Nordea’s chief analyst Jan von Gerich estimated at hundreds of billions of euros that losses threaten the Eurosystem due to the ECB’s purchases.
“We have to fight inflation by raising interest rates, which will lead to an increase in the interest expenses we pay to the banks,” the ECB said on Tuesday, according to news agency Reuters.
“In this case, our profits will shrink and we may even make a loss.”
of the ECB the balance sheet must be temporarily at a loss and the losses should not normally have a major impact on the central bank’s operations. Its main function is to control inflation, not to make a profit.
According to the ECB, however, it is good from the point of view of financial independence that national central banks have sufficient capital.
The central banks of the member countries of the euro zone give the governments a part of their profits, so with the losses, the governments’ incomes decrease. The rise in interest rates can also cause billions in losses for the Bank of Finland, von Gerich said.
“Governments should not expect significant income streams from the central bank in the next few years. Euro states, including Finland, may in the next few years have to find funds both to pay higher government interest expenses and also to cover the central bank’s losses,” von Gerich wrote in October.
The situation can be especially politically embarrassing if the states have to ask the central banks for additional funding. According to Reuters, in Europe, the central banks of Holland, Germany and Belgium are at greatest risk, because they have the most deposits from commercial banks.
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