Central bank losses and commercial bank profits: Unexpected and unfair?

Thomas Jost and Reimund Mink

No 199, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: The Eurosystem and the Deutsche Bundesbank will incur substantial losses in 2023 that are likely to persist for several years. Due to the massive purchases of securities in the last 10 years, especially of government bonds, the banks' excess reserves have risen sharply. The resulting high interest payments to the banks since the turnaround in monetary policy, with little income for the large-scale securities holdings, led to massive criticism. The banks were said to be making "unfair" profits as a result, while the fiscal authorities had to forego the previously customary transfers of central bank profits. Populist demands to limit bank profits by, for example, drastically increasing the minimum reserve ratios in the Eurosystem to reduce excess reserves are creating new severe problems and are neither justified nor helpful. Ultimately, the EU member states have benefited for a very long time from historically low interest rates because of the Eurosystem's extraordinary loose monetary policy and must now bear the flip side consequences of the massive expansion of central bank balance sheets during the necessary period of monetary policy normalisation.

Keywords: Central Bank Losses; Eurosystem; Quantitative Easing; Minimum Reserves; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E50 E58 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:283623

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