Costs of QE become apparent: German central bank records record losses of 20 billion euros, ECB faces "loss assessment" in future stimulus policies.

The Bundesbank of Germany stated that when the European Central Bank decides on whether to stimulate demand through large-scale bond purchases in the future, it must consider the potential risk of losses. In a report on the strategic review of monetary policy by the European Central Bank, the Bundesbank pointed out on Wednesday that due to the excess liquidity generated by such bond purchases leading to increased interest expenses, the recent losses were "more severe than expected." The Bundesbank's report showed a loss of nearly 20 billion euros (approximately 23 billion dollars) in 2024, the first annual loss since the 1970s, and suggested that there may continue to be smaller losses in the coming years. The European Central Bank itself recorded a record loss of 8 billion euros. The Bundesbank emphasized: "When evaluating large-scale asset purchase tools in the context of a low interest rate environment in the future, the Eurosystem should also take into account the potential balance sheet risks." The record loss of the Bundesbank is the first since the 1970s. Last month, policymakers at the European Central Bank completed a nearly year-long strategic review aimed at preparing for more frequent economic shocks and inflation fluctuations. The European Central Bank retained all policy tools, including quantitative easing, but did not specify their specific use. The assessment documents and some officials' statements suggest that due to central bank losses and chain effects such as asset bubbles, quantitative easing may be used more cautiously in the coming years. European Central Bank decision-makers agreed to conduct a "comprehensive proportionality assessment" before using unconventional tools, and explicitly noted that when two alternative tools can produce similar effects, the potential impact on the central bank's balance sheet must be taken into account - the Bundesbank also stressed this point in particular. The Bundesbank stated that "current and foreseeable losses will not endanger the Eurosystem's ability to maintain price stability," but officials and economists are concerned that the situation may change. Speaking of such losses, European Central Bank Executive Board member Schnabel stated last year: "Even though the central bank is not a profit-maximizing institution, this situation could still damage credibility."