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

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

🇪🇺 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

ECB says that the loss will remain on the balance sheet and will be offset by future profits

the loss happened because ECB spent more than earned. they did so by using cash, selling assets or increasing liabilities

the net effect is the same: reduction in equity

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

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