Overnight Markets- Leading News-Update 2

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Bundesbank Builds Buffer against ECB

FRANKFURT, March 13 (Reuters) – Germany’s Bundesbank used a substantial part of last year’s profit to boost its risk buffer because of growing worries about the price euro zone central banks will have to pay for saving the bloc’s banking system.

The European Central Bank helped to avert a credit crunch by flooding the euro zone’s banking system with over one trillion euros ($1.3 trillion) in cheap 3-year loans, and also loosened the rules on what collateral it would accept from banks in exchange for the funding.

The Bundesbank has warned of the increasing risks the euro zone’s central banks have taken on as a result of such steps and this is also reflected in its balance sheet.

The Bundesbank’s 2011 profit fell to 643 million euros from 2.2 billion euros in 2010 as it raised its provisions for risks related to credit, exchange rate, gold and other prices by 4.1 billion euros compared with an increase of 1.6 billion euros in the previous year.

“The main reason for the decline in profit is the increase in risk provisions,” said Bundesbank President Jens Weidmann, who is also a member of the European Central Bank’s Governing Council.

“The counterparty credit risks arising from the government bond purchase programme and refinancing business have increased perceptibly as a result of the larger volume and the higher degree of risk,” Weidmann added.

Such risks are also reflected in the euro zone’s cross-border payment system, TARGET2, in which the Bundesbank has accumulated claims of around 500 billion euros – the highest position of any euro zone central bank payment system….


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