One of the legacy issues stemming from the ECB’s QE operations is that national central banks across the euro area are reporting annual losses in their 2023 accounts, and flagging further losses to come. The Dutch central bank figure of \u20ac3.5bn was dwarfed by the Bundesbank’s \u20ac21.6bn , which wiped out its reserves. Against that backdrop the recently reported Irish central bank’s loss of \u20ac132m appears a very good result, although there are a number of factors at work which imply that the 2024 figure will be much higher.<\/p>\n\n\n\n
In the ten years to 2023 the Central bank was recording large profits and transferring substantial sums to the Irish Exchequer , exceeding \u20ac2bn per annum on occasion, with a total of over \u20ac15bn.This in part reflected the negative interest rate the CB was paying on deposits from the Irish commercial banks but a key factor was the interest and capital gains on the \u20ac25bn Floating Rate Notes (FRN) issued by the Irish Government the CB had acquired as a result of its liquidity support for Anglo Irish Bank.The maturities varied , with an average interest rate of 6-month Euribor plus 2.63%, so the value of the notes soared in a period of very low and then negative rates.The CB sold the notes back to the NTMA over time, recording large capital gains, and that was also the case in 2023, with a gain of \u20ac1bn. <\/p>\n\n\n\n
So absent that realised gain the loss would have been over \u20ac1.3bn, and as the notes have now all been sold that source of profit is no longer available, putting more emphasis on the CB’s net interest income. As a consequence of QE and the PEPP the CB held \u20ac60bn of securities for monetary purchases , receiving \u20ac379m in interest in 2023, implying an average coupon of only 0.63%. These asset purchase were funded by the CB creating deposits for the banks selling the bonds and the Deposit Facility Rate has of course climbed as a result of ECB monetary tightening, from -0.5% in mid 2022 to the current 4.0%. In 2023 the CB paid \u20ac2.8bn to Irish banks on these deposits, so giving a net interest loss of \u20ac2.4bn as a legacy effect of QE.<\/p>\n\n\n\n
The deposit facility is likely to fall in 2024, so reducing the deposit interest paid, while the bonds held will gradually decline as they are no longer replaced as they mature. The CB also has other sources of income to offset its \u20ac300m in operating costs, including interest on positive Target balances at the the ECB (as a result of monetary inflows into Ireland) which are remunerated at the refinancing rate , which is currently 4.5%. The total interest earned last year was \u20ac3.4bn, but again this is likely to fall as the ECB moves to monetary easing.<\/p>\n\n\n\n
The net loss of \u20ac132m loss last year was met by drawing down from the \u20ac3bn in provisions set aside for that purpose and as noted absent the gain from the FRN the loss would have been well over \u20ac1bn. Consequently the next few years may well see much higher headline losses, although the CB cannot go bankrupt as it has large reserves and can also print money. It does mean though that it may be some time before transfers to the Exchequer resume.<\/p>\n","protected":false},"excerpt":{"rendered":"
One of the legacy issues stemming from the ECB’s QE operations is that national central banks across the euro area are reporting annual losses in their 2023 accounts, and flagging further losses to come. The Dutch central bank figure of \u20ac3.5bn was dwarfed by the Bundesbank’s \u20ac21.6bn , which wiped out its reserves. Against that … Continue reading “Irish Central Bank losses”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16,19],"tags":[],"class_list":["post-348","post","type-post","status-publish","format-standard","hentry","category-ecb","category-irish-banking-sytem"],"_links":{"self":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts\/348","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=348"}],"version-history":[{"count":2,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts\/348\/revisions"}],"predecessor-version":[{"id":350,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=\/wp\/v2\/posts\/348\/revisions\/350"}],"wp:attachment":[{"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=348"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=348"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/danmclaughlin.ie\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=348"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}