by "central bank" I'm frequently referring to the broader set of the legal framework behind the macro monetary policy

in most countries central banks plays a key role, but they frequently co-exist in a larger network of institutions

offsetting losses with future profits is explicitly allowed under Article 33 of Statute of ESCB & ECB

ESCB = ECB + EU National Central Banks (NCBs)

so this applies to both, the European Central Bank, and all EU National Central Banks

Illya Gerasymchuk 2025-08-14 21:00

equity is the residual claim on assets after all liabilities are paid

equity = assets - liabilities

so the ECB just covers the loss with their equity. this equity reduction is carried forward to be offset by future profits

🇪🇺 ECB's "business model" is as follows:

➕ income: ECB creates money and invests it into financial assets (e.g.: FX, bonds, funds)

➖expenses, such as operational expanses (e.g. staff), facility and open market operation expenses (e.g. TARGET)

profit/loss = income - expenses

Illya Gerasymchuk 2025-08-14 20:53

ECB recorded an €8 billion loss in 2024 - what happens in that case?

that's a balance sheet question. to understand what happens we need to look into the operational or "business" model of the European Central Bank