Tribute to interest rate policy: Bundesbank makes historic loss

In 2023, the Bundesbank narrowly avoided a loss. But the burden of the interest rate turnaround almost consumed the provisions. Now the central bank in Frankfurt am Main is posting a loss for the first time since 1979. Further years of losses are likely.

The first loss since 1979 and the highest in the history of the Bundesbank: The Deutsche Bundesbank's balance sheet for last year shows a deficit of around 19.2 billion euros. This means that the financial windfall for the federal budget has once again been lost - as in the four years before.

Red figures are also likely for the next few years, although the Bundesbank believes that losses will be lower. "The peak of the annual burdens has probably been passed," said Bundesbank President Joachim Nagel at the presentation of the annual financial statements in Frankfurt am Main. Nagel had already warned of lean years when presenting the balance sheet a year ago: "We expect not to be able to distribute profits for a long time." The Bundesbank wants to offset losses in the coming years with future profits.

In the 2023 financial year, the Bundesbank narrowly avoided a loss - but only because it was able to draw on provisions worth billions. The burden of the rapid interest rate turnaround almost consumed the buffers. For 2024, the Bundesbank therefore only had 0.7 billion euros in reserves to cushion losses. Although the interest result improved slightly, it was still significantly in the red at around 13.1 billion euros (previous year: 13.9 billion euros).

Starting in the summer of 2022, the European Central Bank (ECB) rapidly increased interest rates in the euro area in order to get high inflation under control. Inflation is now far from record levels, so the ECB has lowered key interest rates in the euro area again. Higher interest rates on the financial markets led to rising interest expenses on the part of the central banks, with interest income not keeping pace. At the same time, many long-term securities such as government and corporate bonds, which the euro central banks bought on a large scale for years as part of the common monetary policy, yield comparatively low interest rates.

ECB with record loss

The ECB itself reported its second consecutive year of losses for 2024 and the highest loss in its more than 25-year history: a good 7.9 billion euros. The ECB's usual profit distribution - including to the Bundesbank - was thus canceled again. Bundesbank Vice President Sabine Mauderer emphasized the solidity of the Bundesbank's balance sheet: "The Bundesbank can bear both the current and expected financial burdens."

For example, the Bundesbank's gold reserves have become significantly more valuable due to the increased price of the precious metal. The Bundesbank's total reserves of gold and foreign currencies were valued at just over 267 billion euros at the end of last year - up from just over 197 billion euros a year earlier.

The main goal of central banks is not to make profits. The ECB and the national central banks in the Eurosystem are primarily responsible for ensuring stable prices and thus a stable currency in the currency area of ​​the 20 states. The monetary authorities believe that this goal will be achieved if inflation in the euro area is 2.0 percent in the medium term.

ECB President Christine Lagarde recently expressed confidence that the two percent mark for inflation will be reached this year. Higher inflation rates reduce the purchasing power of consumers, meaning they can afford less for one euro. Bundesbank President Nagel is also confident about the future development of inflation: "We expect a sustainable return to the two percent mark in Germany in 2026."

For years, the Federal Ministry of Finance had traditionally budgeted for a Bundesbank profit of 2.5 billion euros in the federal budget. In 2019, the then head of the department, Olaf Scholz, was still able to celebrate the highest Bundesbank profit since the financial crisis: 5.85 billion euros. The last balance sheet loss was 45 years ago: in 1979, the Bundesbank reported a deficit of just over 2.9 billion euros.