Bundesbank May Need Bailout on ECB Bond Buying, Auditor Says

(Bloomberg) — The Bundesbank may need an injection of government cash to cover losses on bonds acquired as part of the European Central Bank asset-purchase programs, according to Germany’s federal auditor.

“It would be expected that the state would recapitalize the Bundesbank via the budget,” officials said in a report seen by Bloomberg. The Finance Ministry said it disagrees with that conclusion.

The Bundesbank recorded zero profit for last year and drew down €1 billion ($1.1 billion) in risk provisions after steep rate hikes in the euro zone collided with years of bond-buying.

Germany’s central bank said in March that losses will worsen in coming years and may not be fully covered by provisions already set aside, which then stood at €19.2 billion. It said at the time that losses will be carried forward and offset by future profits, suggesting a capital injection from the government won’t be needed.

However, the auditor reckons such shortfalls may not be sustainable, and the government should plan accordingly.

“Ongoing monetary policy activities — given their magnitude — harbor the risk of negative equity,” officials said. That gives rise to “doubts that the Bundesbank would be able to independently bear the losses in all cases.”

“It’s not just the extreme case of a large member country leaving the monetary union that leads to negative equity in accounts at the Bundesbank,” the auditor said.

The audit office’s report was first reported by the Financial Times.

Asked for comment, Germany’s Finance Ministry said it “comes to a different assessment of risks” and doesn’t agree with the recommendations of the auditor.

A “burden on the federal budget due to losses from monetary-policy operations by the Bundesbank is very unlikely from the government’s point of view,” a spokesperson said Monday.

(Updates with ministry comment starting in second paragraph)

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