It was founded on June 1, 1998. The headquarters is located in the German city of Frankfurt am Main. Its staff includes representatives of all EU member states. The bank is completely independent of the rest of the EU.
The European Central Bank is the "successor" to the European Monetary Institute (EMI), which played a leading role in preparing for the introduction of the euro in 1999.
Structure
The European system of central banks consists of the ECB and national central banks:
- The National Bank of Belgium (Banque Nationale de Belgique), manager Guy Quaden;
- Bundesbank, manager Jens Weidmann;
- Bank of Greece, Governor Nicholas C. Garganas;
- Bank of Spain, Governor Miguel Fernández Ordóñez;
- Bank of France (Banque de France), manager Christian Noyer;
- Luxembourg Monetary Institute.
All key issues related to the activities of the European Central Bank, such as the accounting rate, accounting for bills of exchange and others, are resolved by the management and the board of governors of the Bank.
Profit and loss
2023: Record loss for 19 years - $1.3 billion
2021: Profit cut to €192 million
In 2021, ECB profits decreased as a result of negative interest rates and financial risks associated with measures to save from the COVID-19 pandemic.
Net profit decreased to 192 million euros from 1.6 billion euros.
Powers of the ECB
The main functions of the bank:
- development and implementation of the currency policy of the euro zone;
- the maintenance and management of the official exchange reserves of the euro area countries;
- issue of euro banknotes;
- setting major interest rates.
- maintaining price stability in the eurozone, that is, ensuring an inflation rate of no higher than 2%.
Issue of euro
Supervisory authority for the entire eurozone banking system
- In June 2012, EU leaders decided to create a single supervisory authority for the entire eurozone banking system, as well as increase the powers of the ECB. This is necessary in order to organize support for European commercial banks directly and break the connection between bank balances and the financial situation of states, which is now seen as one of the main causes of the debt crisis[1].
The continental system of banking supervision will begin its work in 2013. In September, the European Commission must submit its proposals on the regulations of its activities and the scope of powers.
Accordingly, direct support to banks, which will bypass state budgets, can begin only after the creation of a common supervisory structure. The ECB's role will be to control "systemically important" banks as well as aid recipients. Decisions of the Central Bank will not be able to be challenged by national regulators.
- On August 15, 2012, the United Kingdom demanded that the European Central Bank share powers with national regulators, leaving only strategic functions. This was reported by Bloomberg. In particular, the daily supervision of commercial banks, at the suggestion of the British, should remain with the local Central Bank.
Refinancing rate
Credit rates mean the cost of borrowing banks from the ECB.
Main refining operations (MRO) has a lower rate and differs from Marginal lending facility in that MRO is provided for longer periods, typically several months, whereas Marginal lending facility is either overnight or up to a week. Plus slight differences in collateral.
2023: Rate increase to 4.5%
On September 14, 2023, the ECB raised the rate by 25 bp to 4.5%, on deposits to 4%.
For MRO, the rate of 4.5% is a record, surpassing the maximum of July 2008 (4.25%), and for Marginal lending facility it was even higher (5.75% in October 2000).
On July 27, 2023, the ECB raised the base rate by 25 bp. - up to 4.25% per annum, the deposit rate - up to 3.75%, the rate on marginal loans - up to 4.5%.
Earlier on June 15, 2023, the ECB raised the rate by 25 bp to 4%. The rate increase was the eighth in a row. The deposit rate is 3.5% - the maximum since 2001.
On May 4, 2023, the ECB raised its benchmark interest rate by 25 bp, to 3.75%. Thus, the base interest rate was increased to 3.75%, the deposit rate - to 3.25%, on short-term loans of the ECB - to 4%.
On March 16, 2023, the ECB raised its benchmark rate by 50 bp, to 3.5% per annum.
Earlier on February 2, 2023, the ECB raised the rate by 50 bp, to 3%.
2022: Rate increase to 2.5%
On December 16, 2022, the ECB raised its base rate by 50 bp to 2.5% per annum.
Earlier on October 27, 2022, the ECB raised the base rate by 75 bp. - up to 2% per annum. He considers it appropriate to further increase the base rate to achieve an inflation rate of 2%.
Earlier on September 8, 2022, the ECB for the first time in history raised the base rate by 75 basis points at once, to 1.25% per annum.
Earlier on July 21, 2022, the ECB raised its base rate for the first time since 2011, immediately by 50 bp, to 0.5%.
2019
Deposit rate
The deposit rate is one of the three key interest rates set by the eurozone regulator (the other two are the refinancing rate and the margin lending rate). This is the percentage that commercial banks receive for placing short-term (overnight) deposits (their excess funds) in the national Central Bank.
EUREP: lending to the Central Bank of countries outside the euro zone
Money supply
2024: 8.6% reduction in M1 in January
The ECB's cash supply contracted in January 2024 as the private sector shifted its money from deposits to less liquid assets, while net household lending rose marginally and lending to companies declined.
The M1 reduction accelerated to -8.6% YoY, the M3 compression was -0.1% YoY.
Quantitative easing and assets on balance sheet
2023: €491 billion balance sheet cut to €7.2 trillion or 53% of Eurozone GDP
At the beginning of July 2023, the ECB balance sheet for the week decreased by 491 billion euros, which is the largest decline since December 2022, as banks repaid 503 billion euros of their TLTRO loans and due to adjustments at the end of the quarter. The total assets amount to 7,219,7 billion euros, the lowest since March 2021, and is equal to the Eurozone's GDP 53% against 31% of the Fed, 121% of the SNB, 128% of the BOJ.
2022
Balance sheet reduction of 800 billion euros due to repayment of loans by Eurozone banks taken during COVID-19
The ECB's balance sheet shrank by almost 800 billion euros in 5 weeks. In the week to November 25, 2022, the balance sheet shrank by 298 billion euros, and in the week to December 23, the balance sheet shrank by a record 491 billion euros.
The entire reduction in the balance sheet is due to the repayment of loans taken by the Eurozone banking system during the COVID-19 pandemic and aggressive lockdowns (from March to July 2020). Then the total volume of credit programs provided by the ECB in favor of the financial system amounted to 1.6 trillion euros, and paid off exactly half.
ECB credit programs have been actively used three times in 15 years. At the time of the financial crisis of 2008-2009, for plugging cash gaps and a crisis of confidence in the financial system (at a peak of about 400 billion).
The second episode was in the period from September 2011 to September 2012 with a total volume of 830 billion euros at the time of the acute phase of the debt and banking crisis in the Eurozone.
Loans to the ECB were repaid for the first time and for the second time after about 2.5 years.
Interestingly, each new crisis led to a doubling of credit lines - 400 billion in 2009, then 830 billion in 2011 and 1.6 trillion in 2020.
This time, loan retention has become unprofitable for banks. It makes no sense to pay 2.5% on excess 1.6 trillion euros, which do not find application in the real economy (40 billion euros of interest costs for Eurozone banks is very painful).
New balance sheet record of €8.79 trillion, or 82% of GDP
In early May 2022, the ECB balance sheet reached another record of 8.79 trillion euros.
2021
Plan to complete PEPP asset buyback programme with €1.85 trillion limit
The ECB printing press, which has poured 4 trillion euros into the markets since the beginning of the COVID-19 pandemic, will continue to operate as before. However, in March 2022, the key program of emergency redemption of PEPP assets with a limit of 1.85 trillion euros, of which 1.49 trillion are involved, will be completed, the head of the ECB Christine Lagarde said. At the same time, the ECB will continue operations under the main APF program, within which 20 billion euros per month are poured into the markets.
Balance above €7trn
By February 2021, the ECB's balance sheet had expanded more in 15 months under Christine Lagarde than in all eight years under Mario Draghi.
The bank's assets as of Feb. 21 were up 2.42 trillion euros ($2.94 trillion) from when Lagarde took over in November 2019. Under Draghi, the balance sheet increased by 2.35 trillion euros.
While the former ECB chairman's bond-buying program has inflated assets significantly in recent years, Lagarde's pandemic stimulus to fight the century's largest peacetime recession has pushed the overall balance sheet above 7 trillion euros.
Since the beginning of the pandemic by mid-2021, central banks in the United States, Europe and Japan have spent $9 trillion, which has turned them into the largest whales in the market with total assets of $24 trillion.
This is equivalent to the total market value of the dozens of largest and most famous companies in the world.
Most of these funds turned out to be in the form of bank deposits, providing creditors with liquidity. Pumping that money through the economy will be key to sustaining the recovery as central banks cut stimulus.
2020
Balance sheet growth to €6.78 trillion or 66.4% of Eurozone GDP
In October 2020, the ECB's total assets reached a new annual high of 6,781,8 billion euros.
The balance at this time is 66.4% of the Eurozone's GDP against 37% of the Fed and 137% of the Bank of Japan.
Balance sheet growth to €6.2 trillion
ECB prints 1.3 trillion euros in a day: largest refinancing operation in the bank's history
In June 2020, the ECB conducted the largest refinancing operation in 22 years of its existence. 724 banks received from the regulator a total of 1.308 trillion euros of loans under the TLTRO long-term loan program.
For recipients, the ECB money was not just free: the rate was set at 0.5 percent below the deposit rate and amounted to minus 1% per annum.
ECB balance sheet hits new record of € 5,257,5 billion or Eurozone GDP 44%
By mid-April 2020, the bank's total assets grew by another 58 billion euros per QE, and commercial banks received another 19.3 billion euros in the form of TLTRO loans.
The ECB's balance sheet now equals a record 44% of GDP the Eurozone against the Bank's 111%, Japan 28%. FRS
Expanding asset purchases due to coronavirus epidemic
On March 12, 2020, the ECB expanded its existing asset purchase program in connection with the COVID-19 epidemic. Previously, the bank purchased assets for an average of 20 billion euros per month; now it was decided by the end of the year to additionally purchase assets for another 120 billion euros, and a significant part in the procurement package will be corporate bonds. ECB experts argue that this will support the markets of countries in which risks on government bonds grow - for example, the Italian market.
On March 18, 2020, the ECB launched another temporary program to purchase private sector assets and government bonds. The program is called the Pandemic Emergency Purchase Program (PEPP). The program provides for an additional buyback of private and public sector securities worth 750 billion euros. The validity period of the program was not indicated. The ECB said the program would last until the crisis ends, but not until the end of 2020 anyway.
 | "Asset buybacks will be in place until at least the end of 2020. All categories of assets subject to the existing Asset Repurchase Program (APP) will be repurchased, "the bank said in a statement. |  |
The criteria for the purchase of state assets have also been relaxed, so now the ECB will be able to purchase Greek government bonds as well.
The regulator will also temporarily launch additional long-term refinancing (LTRO) programs to support the liquidity of the countries' financial system. EU In addition, the ECB left the deposit rate at -0.5%, and the key one at 0%. From June, the official program of targeted long-term refinancing operations (TLTRO III) will begin to operate, which implies more favorable lending conditions. In the period from June 24, 2020 to June 23, 2021, the interest rate on all loans issued under the TLTRO III program will be 25 basis points lower than the average rate on ECB loans, the Central Bank said in a statement. The purpose of all these measures is to provide the markets affected by the crisis with liquidity and at the same time prevent it from "dissolving" in the banking system, but to bring it directly to the corporate sector and households.
In addition, the regulator has expanded the list of securities for redemption under the CSPP corporate bond program. In particular, securities on non-financial corporate debt obligations are now subject to redemption. The risk premium has also been increased. In addition, the ECB has relaxed auxiliary standards for its own operations.
The European Central Bank has made it clear that room for maneuver remains even now, after all the announced measures. Thus, the ECB stressed in its statement that, if necessary, it is ready to increase procurement volumes and revise the priority categories of purchased assets. In addition, it follows from the bank's statement that it is considering other measures to combat the crisis and may go beyond the restrictions of its own activities established by it, if the situation requires it.
2019: Which countries oppose quantitative easing
2012: Positive impact of the second phase of the long-term funding programme
Ernst & Young, June 2012: The implementation by the European Central Bank (ECB) of the second stage of the long-term refinancing program brought some relief, positively received by the market, and helped reduce the risk of an inevitable credit crisis. Banks reported stable compliance by potential borrowers with the credit standards set for them, while banks "own liquidity positions and access to financing also stabilized after a sharp deterioration in 2011.
However, at the beginning of the second quarter of 2012, demand for loans remained very low, and although the credit crisis was avoided, this had little effect on the desire of companies and consumers to borrow.
Ernst & Young, July 2, 2012: Andy Baldwin, Head of the Ernst & Young Practice for Services to Financial Institutions in the EMEIA Region (Europe, Middle East, India and Africa), comments on the situation: "Although banks have already felt the impact of the eurozone crisis in 2012, the main wave will cover the financial sector in 2013, when the share of bad loans will become much larger than can be assumed."
Lowering the forecast for eurozone GDP growth to 0.6% in 2012 and modest expectations of economic growth for next year at 0.4% indicate a new deterioration in the situation with problem loans. If in March 2012 analysts believed that the share of bad loans in 2012 would reach a record high level since the creation of the single currency, today the forecast looks somewhat different: by the end of 2012, the share of bad loans will be 6.2%, and a record high of 6.5% will be reached in 2013.
Marie Diron, economic consultant in preparing the Ernst & Young economic forecast for the financial services sector of the eurozone countries, notes: "Due to the peculiarities of the economic cycle, problem loans are a time bomb for the economies of European countries. A new decrease in the forecast for eurozone GDP growth led to a deterioration in the forecast for bad loans, while the deadline for reaching the peak was postponed to 2013. Many banks provide quite large deferrals to their borrowers, which masks the real share of problem loans in their loan portfolio. As the economic situation deteriorates further, more and more loans will move into the category of problem loans, which will force banks to realize losses and further limit lending volumes. "
According to the forecast, in 2012 banks of the eurozone countries will reduce their balance sheets by 1.6 trillion euros as a result of the sale of non-core assets and a decrease in lending volumes. In particular, the decline in corporate and consumer loans will be even more significant than previously predicted. Lending to corporate clients is expected to decrease by 4.8% in 2012, while consumer loans are expected to decrease by 6.6% - a rate of decline that is record high in its category for the euro area.
Marie Diron comments: "This will have a significant impact on the eurozone economy as a whole. Such a reduction in balance sheets was not observed even during the financial crisis of 2008-2009. Although this situation can be partly explained by a decrease in demand for loans, it will inevitably lead to an exacerbation of the problem of lack of credit resources, which will mainly affect small companies - unlike large corporate borrowers, it is more difficult for them to regroup funds and access alternative sources of financing. Despite the fact that lending in Germany will grow slowly, the reduction or restriction of lending in other eurozone countries does not allow us to talk about a revival in activity in the corporate lending segment in the euro area as a whole until 2015. "
History
2019: Hackers shut down European Central Bank website and stole customer data
On August 15, 2019, the European Central Bank reported a hacker attack that led to the shutdown of one of the regulator's sites and the theft of client data.
According to the ECB, the server of the Banks' Integrated Reporting Dictionary (BIRD) website was hacked. Attackers could get their hands on email addresses, name and job details of 481 BIRD subscribers.
In the future, this information can be used to gain access to the account of clients of financial institutions or carry out other hacker attacks.
At the same time, user passwords were not stolen, the attack did not affect either the internal systems of the ECB or important market information, the organization assured.
BIRD's website publishes information for banks regarding the details of the provision of statistical and regulatory reports, its servers are separated from the external and internal systems of the ECB. BIRD's site is maintained by a third-party provider and is not technically linked to any other external or internal ECB systems.
After the cyber attack was noticed, the European Central Bank disabled the site, began to fix the vulnerability and warned users whose data could be compromised.
It is noted that the unauthorized penetration of unknown persons into the computer system was discovered during technical work. According to the ECB, hackers managed to inject malware on an external server to simplify unauthorized data acquisition.
What vulnerability allowed hackers to penetrate systems is not specified. Experts suggest that the problem may be related to a misconfigured firewall and not completely closed AWS services.
This is at least the second time in the past five years that the websites of a European banking regulator have become a target for hacker attacks.[2]
Notes
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