The Bundesbank could demand a “bailout” for its bond-buying losses

He Bundesbankcentral bank Germanyrecapitalization with public funds may be needed to cover losses arising from the program purchase of bonds European Central Bank (ECB), according to a report by the Bundesrechnungshof, Germany’s federal audit office, which could jeopardize the launch of similar Eurobank plans in the future. “Possible losses of the Bundesbank are considerable and could require recapitalization with budget funds”he points to the audit office report that he had access to Financial Times. The Ministry of Finance has a “different assessment”. He considers it “highly unlikely” that the losses will “burden the federal budget.”

The Bundesbank announced in March that it had taken a €1bn negative hit on its bond holdings as it grappled with the impact of higher interest rates. He also warned that future losses would drain his remaining financial reserves, although he denied he needed a public bailout. Estimates losses of EUR 19,200 million in provisions and EUR 2,500 million in capital in the coming years.

As part of the ECB’s debt purchase program, launched in 2015, the Bundesbank bought some 666 billion euros of government bonds. Many are now announcing negative rates, putting pressure on the German bank over the widening gap between the interest it pays commercial banks on its deposits and what it earns on bonds.

Paradoxically, barely eight months ago, its president Joachim Nagel declared that “further increases in interest rates are necessary to bring the inflation rate down to 2%.”