The Deutsche Bundesbank has recorded its highest loss ever, amounting to 19.2 billion euros for the financial year 2024. This marks the first time the bank has reported losses since 1979. The staggering figure is attributed to the monetary policy of the European Central Bank (ECB), which raised interest rates sharply starting from summer 2022 to combat high inflation.
At the annual financial presentation held at the Bundesbank’s headquarters in Frankfurt am Main, President Joachim Nagel acknowledged the historical significance of this loss, stating, "Der Höhepunkt der jährlichen Belastungen dürfte überschritten sein," which translates to "The peak of annual burdens is likely to be exceeded." This comment pools together the stark realities of the prevailing financial conditions and their ramifications for the bank's future operations.
For several years, the Bundesbank had turned profits, traditionally contributing about 2.5 billion euros annually to the federal budget. This trend drastically changed, as the recent losses followed four consecutive years without any profit allocations to the government. The notable peak of Bundesbank operations was in 2019 when the then Finance Minister Olaf Scholz celebrated the highest profit recorded since the financial crisis, at 5.85 billion euros.
The current loss stems not only from high-interest expenditures outstripping income but also from the fact many long-term securities previously purchased yielded low returns. The financial buffers, which had previously helped avert losses, were depleted, leaving only 0.7 billion euros available to offset the latest losses.
The nature of the financial strain faced by the Bundesbank serves as both consequence and reflection of the ECB's aggressive interest rate policy. Varying economic forecasts predict some alleviation, albeit, according to experts, the relief likely won't appear for several years. Vice-President of the Bundesbank, Sabine Mauderer, emphasized during the presentation on the bank's financial stability, asserting, "Die Bundesbank kann sowohl die aktuellen als auch die zu erwartenden finanziellen Belastungen tragen," meaning, "The Bundesbank can manage both current and expected financial burdens." This statement instilled some confidence amid uncertainty, indicating the bank's resilience amid slow recovery.”
Meanwhile, the ECB itself reported losses of its own—7.9 billion euros making it the highest over its 25-year history—further complicates the situation for national banks like the Bundesbank. Without the usual profit transfers from the ECB, the federal budget is anticipated to face prolonged difficulties.
Looking forward, many experts, including economist Volker Wieland, commented on the Bundesbank's financial capabilities highlighting, "Notenbanken können zudem nicht zahlungsunfähig werden, weil sie ja das gesetzliche Zahlungsmittel selbst in Umlauf bringen," which states, "Central banks cannot become insolvent, as they issue the legal tender themselves." This sentiment reflects the unique position of central banks, which can theoretically continue operations without the risk of defaulting on obligations, as they have the capacity to produce currency.
Nagel has optimistically projected recovery timelines hoping for stabilization, stating, "Mit einer nachhaltigen Rückkehr zur Zwei-Prozent-Marke rechnen wir in Deutschland 2026," meaning, “We expect to return sustainably to the two percent mark for inflation by 2026.” This statement signals intent within the governance of monetary policy to return to more standard financial conditions set against the backdrop of stabilizing inflation rates.
The loss suffered by the Bundesbank, alongside the absence of guarantees for future profits, reflects the broader economic challenges faced across Europe. While immediate repercussions for the average citizen may appear muted, the money flow ramifications for the federal budget can potentially yield cascading effects on public sector financing and economic stability long-term.
For now, the Bundesbank, much like other central banks, must tread carefully as it navigates potential future losses and the hits from the recent monetary strategies aimed at curtailing inflation. The overarching goal remains, as emphasized by many—including Nagel himself—ensuring price stability within the euro area, even at the expense of short-term profitability.