MNI BRIEF: ECB Raids Provision Fund As NCB Interest Costs Rise

The European Central Bank will not make profit disbursements for fiscal year 2022 for the first time since 2007 after the Governing Council signed off on a zero euro net result for the 12 months to Dec 31, and transferred EUR1.627 billion from its provision for financial risk fund to cover operating losses. After the transfer, the PFR stood at EUR6.566 billion, the ECB said.

The losses were largely due to rising interest payments on Target2 liabilities to national central banks incurred in its asset purchase programme, the ECB said Thursday. Through December, the ECB recorded no impairment losses on bond holdings related to monetary policy decisions, as they are still booked at cost. The ECB balance sheet stood at EUR699 billion, up EUR19 billion on 2021, while the Eurosystem's balance was around EUR8.5 trillion.

Apart from the increase in Target2 interest as rates rose, the ECB recorded losses on its portfolio of foreign currency held for purposes not related to monetary policy. Losses on dollar holdings came as U.S. yields rose sharply as the Federal Reserve hiked rates aggressively through 2022.