The primary objective of the Eurosystem – which comprises the European Central Bank (ECB) and the national central banks in the euro area – is price stability. The ECB Governing Council focuses the monetary policy of the Eurosystem exclusively on this objective. Monetary policy measures are reflected on central banks’ balance sheets. Such measures can cause central banks’ profitability to fluctuate strongly over time. Both profits and losses are possible.

2024, like 2023, was a year of considerable financial burdens for the Bundesbank. The rise in euro area policy rates in 2022 and 2023 weighed on net interest income and the net result of the pooling of monetary income. In 2023, the Bundesbank was able to offset this burden: it released its provision for general risk, amounting to €19.2 billion, in full, and additionally tapped €2.4 billion of its reserves. Reserves of €0.7 billion were still available for 2024, meaning that the Bundesbank will report an accumulated loss of €19.2 billion after these reserves have been released.

Derzeit und mit Blick nach vorn spielen insbesondere The extensive asset holdings built up through the Eurosystem’s monetary policy asset purchase programmes, in particular, will be a factor both now and going forward. In parallel to these asset holdings, commercial banks’ deposits with Eurosystem central banks have also increased in recent years. Owing to the policy rate hikes, the Bundesbank – like other Eurosystem central banks – has to pay higher interest rates on the deposits held with it by commercial banks. At the same time, interest income from the sizeable portfolios of bonds will remain low, with the interest on these bonds being fixed for the longer term. On balance, the relatively high policy rates mean that net interest income is currently negative, as was the case in 2023. 

The Bundesbank’s balance sheet contains long-term low-interest-bearing securities held for monetary policy purposes on the assets side and short-term higher-interest-bearing deposits of commercial banks on the liabilities side. Commercial banks’ deposits are remunerated at the deposit facility rate, i.e. one of the policy rates. This is why the comparatively higher policy rates in 2024 resulted in considerable interest burdens in the Bundesbank’s profit and loss account, much like in the previous year. These burdens are disclosed under profit and loss item 1 “Net interest income”. They have also proportionally affected profit and loss item 3 “Net result of pooling of monetary income”. This is because the risk and returns arising from some securities held by the national central banks for monetary policy purposes have been pooled across the Eurosystem as monetary income. 

The burdens arising from the ECB’s securities holdings do not currently affect the Bundesbank: the Governing Council decided that, as was the case for 2023, the ECB’s losses for 2024 would not be borne by the national central banks. This means that the ECB’s current losses are not reflected in the Bundesbank’s 2024 annual accounts. Looking further ahead, though, these losses will also (proportionally) weigh on the Bundesbank’s profit and loss account. In future, the ECB may refrain from distributing profits for as long as the accumulated losses brought forward on its balance sheet first need to be offset using ECB profits. Another possibility is that, in later years, the monetary income of the national central banks could be used to cover the losses incurred by the ECB.

Up until the end of 2024, TARGET claims and liabilities in the Eurosystem were remunerated at the prevailing main refinancing rate. As from 1 January 2025, they will be remunerated at the respective applicable deposit facility rate. Rising or falling interest income arising from Germany’s TARGET claims thus has an impact on the Bundesbank’s net interest income. However, interest rates on TARGET balances between national central banks do not change the profit or loss realised by the Bundesbank. This is because, ultimately, the interest income and interest expense resulting from the Eurosystem’s monetary income is pooled in its entirety and allocated to the national central banks according to the capital key. This also includes interest income and expense resulting from TARGET balances (and interest expense arising from commercial banks’ deposits). The actual size and distribution of national TARGET balances between the national central banks within the Eurosystem are irrelevant in this context. For example, when banks shift their deposits from the Bundesbank to the Banque de France, Germany’s TARGET balance is reduced. Conversely, the Banque de France’s TARGET balance increases. The total volume of interest income and expense attributable to TARGET balances does not change – it is allocated according to the capital key. The same generally applies to the ECB: the ECB’s monetary policy asset purchases resulted in a net TARGET liability on the ECB’s balance sheet. The ECB’s interest income and interest expense resulting from this part of TARGET balances are recorded in the ECB’s profit and loss account, but separately from the national central banks’ monetary income. However, in the event of profit distribution, they are likewise allocated among the national central banks according to the capital key.  

For more information on the individual items in the profit and loss account, see the Bundesbank’s annual reports.

In the years prior to the pandemic, euro area inflation was too low in terms of the monetary policy objective. The ECB Governing Council therefore adopted a series of monetary policy measures during this period to ensure price stability. These included large-scale asset purchases. Other major central banks around the world also launched purchase programmes such as these. At the start of the pandemic, the ECB Governing Council initiated a further, temporary purchase programme designed to counteract the serious risks to price stability posed by the pandemic. The large-scale asset purchases played a major role in the sharp expansion of Eurosystem central banks’ balance sheets over the past few years. The additional entries on the assets side of the balance sheet are offset mainly by larger deposits from commercial banks on the liabilities side. These additional assets and deposits have caused the risks on central banks’ balance sheets to increase. One of these risks is interest rate risk. This stems from the fact that the bulk of the securities on the Bundesbank’s balance sheet are low-yielding over the long term, while the interest on commercial banks’ deposits is paid on a short-term basis. The strong rise in inflation in 2022 necessitated decisive monetary policy action. The ECB Governing Council therefore raised policy rates sharply in 2022 and 2023. The higher interest rates mean that interest rate risk has since materialised and that interest expenditure is exceeding interest income.

The Bundesbank has made provisions to account for the financial risks on its balance sheet. As early as in its 2016 annual accounts, the Bundesbank began to build up provisions on its balance sheet for interest rate risk and to address these risks in its annual press conferences. Additional risk provisioning was the main reason why the Bundesbank did not distribute any profit in 2020 or 2021. The provision for general risk thereby rose to €20.2 billion. It then initially decreased to €19.2 billion when it was used to offset losses in 2022. In 2023, the provision for general risk was released in full to offset a proportional amount of losses. In addition, €2.4 billion was withdrawn from the reserves to offset the residual loss for the year. As a result, €0.7 billion of the reserves are still available for the current annual accounts for 2024. 

Looking ahead, there is a high degree of uncertainty associated with the persistence and scale of the financial burdens that the Bundesbank will face. This is particularly true against the backdrop of the current (geopolitical) uncertainty. The Bundesbank expects that its future financial burdens will likely be considerable and persist for some years to come. However, as things currently stand, these burdens are likely to diminish more significantly in 2025 for the following reasons: 

• reinvestments under the pandemic emergency purchase programme (PEPP) were gradually reduced to zero in the second half of 2024 and all outstanding monetary policy securities holdings will decline to a greater extent in line with their maturities; 
• the negative interest margin from the remuneration of monetary policy assets and commercial banks’ deposits is narrowing and the interest burden on credit institutions’ deposits for 2025 has decreased as a result of the cuts to the deposit facility rate since 2024. 

In 2023, the Bundesbank’s financial buffers were still sufficient. In 2024, however, the burdens exceeded the remaining reserves. The Bundesbank will therefore report losses in the coming years. In the future, these losses will be reduced again using future profits. Given that it will be necessary to build up provisions again in future, the Bundesbank expects that it will not distribute a profit for some time to come.

A loss for the year is posted in the profit and loss account for a financial year if income is lower than expenditure. Accumulated losses brought forward (profit and loss item 14) represent the loss from the previous year, or the accumulated losses carried forward from the previous years, and are added to the current loss for the year in the profit and loss account. Together with the withdrawal from reserves (profit and loss item 13), the result of the profit and loss account is the accumulated loss, which is reported as liability item 15 in the balance sheet. This corresponds to the accumulated losses brought forward reported in the profit and loss account in the following year.

The statutory reserves are regulated by Section 27 of the Bundesbank Act (Bundesbankgesetz – BbankG). As part of the Bundesbank’s liable capital, these must be allocated directly to equity capital and are available for covering losses. This allocation is carried out as part of the appropriation of profit and is reported separately in the profit and loss account. 

Provisions – with the exception of the provision for Eurosystem monetary policy operations – are formed in accordance with the Commercial Code (Handelsgesetzbuch – HGB). They are formed for uncertain liabilities of the Bundesbank vis-à-vis third parties (including staff) when establishing the profit or loss in the financial statements, even if they increase losses, and are thus allocated to debt capital. They are consumed when used and may only be released if the reason for their formation has ceased to exist. At present, the most substantial provisions are the staff provisions.

Pursuant to Section 26 of the Bundesbank Act, a liability item for general risks associated with domestic and foreign business (provision for general risk) can also be created. The allocation amount is reviewed annually when establishing profit or loss, taking account of generally accepted risk indicators. Their allocation does not increase losses. They can be released to offset losses or if the risk situation improves. 

As a buffer against risks, the provision for general risk has the character of equity capital and is part of net equity capital. 

Central banks differ from enterprises and commercial banks. This is because central banks always remain able to pay in their own currency. The Bundesbank’s balance sheet is sound. The Bundesbank remains able to fully discharge its tasks even in the event of an accumulated loss. What is crucial is that we in the Eurosystem do all that is needed to ensure price stability over the long term.

The Bundesbank’s balance sheet is sound. The Bundesbank has considerable assets, which are significantly in excess of its current and expected future obligations. The degree to which the Bundesbank’s balance sheet is sound is reflected, amongst other things, in its sizeable valuation reserves. As at the end of 2024, these totalled €267 billion. In addition, the Bundesbank anticipates that its financial burdens will pass and that it will subsequently generate profits again.