Bundesbank Reports Historic Loss of EUR19.2 Billion for 2024

The Deutsche Bundesbank has recorded a significant loss of approximately EUR19.2 billion for the previous financial year, marking the first deficit since 1979 and the largest in its history. This development raises concerns about the financial contributions to the federal budget, which have already been absent for the past four years.

Looking ahead, the Bundesbank anticipates further losses in the coming years, although it expects these to be lower than the current figures. Bundesbank President Joachim Nagel indicated during the annual report presentation in Frankfurt that the peak of annual burdens may have been reached.

In the previous fiscal year, the Bundesbank narrowly avoided a loss, primarily due to substantial reserves that were utilized. However, the rapid shift in interest rates has significantly depleted these buffers. For 2024, the institution is left with only EUR0.7 billion in reserves to mitigate potential losses.

While the interest income showed a slight improvement, it remained in the negative, amounting to approximately EUR13.1 billion, down from EUR13.9 billion the previous year. The European Central Bank (ECB) began a series of aggressive interest rate hikes in the summer of 2022 to combat soaring inflation. As inflation rates have since stabilized, the ECB has begun to lower interest rates again.

The increased interest rates on the financial markets have resulted in higher interest expenses for central banks, which have not been matched by correspondent income. Additionally, many long-term securities, such as government and corporate bonds purchased during the ECB's extensive monetary policy measures, yield relatively low returns.

Furthermore, the ECB itself reported a consecutive year of losses for 2024, with a deficit of over EUR7.9 billion, the highest in its more than 25-year history. Consequently, the usual profit distribution from the ECB to national banks, including the Bundesbank, has been suspended.

Despite these challenges, Bundesbank Vice President Sabine Mauderer emphasized the resilience of the Bundesbank's balance sheet, citing the increased value of gold reserves due to rising precious metal prices. By the end of the previous year, the Bundesbank's total reserves in gold and foreign currencies were valued at over EUR267 billion, a notable increase from approximately EUR197 billion the year before.

The primary objective of central banks is not profit generation, but rather maintaining price stability and a stable currency within the euro area comprising 20 member states. The ECB aims to achieve this stability with a target inflation rate of 2.0 percent in the medium term. ECB President Christine Lagarde recently expressed optimism that this target might be reached within the current year.

Moreover, Bundesbank President Nagel remains hopeful regarding the inflation trajectory in Germany, projecting a sustainable return to the 2.0 percent target by 2026.

Traditionally, the German Federal Ministry of Finance has accounted for an expected Bundesbank profit of EUR2.5 billion in its budget. In 2019, the ministry reported a record Bundesbank profit of EUR5.85 billion, following years of substantial earnings. The last recorded loss prior to this year dates back 45 years to 1979, when the Bundesbank reported a deficit of approximately EUR2.9 billion.