Raising Rates with a Large Balance Sheet: The Eurosystem’s Net Income and its Fiscal Implications

By Nazim Belhocine, Ashok Vir Bhatia, Jan Frie

July 7, 2023

Preview Citation

Format: Chicago

Nazim Belhocine, Ashok Vir Bhatia, and Jan Frie. Raising Rates with a Large Balance Sheet: The Eurosystem’s Net Income and its Fiscal Implications, (USA: International Monetary Fund, 2023) accessed April 30, 2025

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The Eurosystem, having purposefully expanded its footprint in recent years, confronts a period of loss-making as rising policy rates lift the remuneration of bank reserves while assets churn more slowly. This paper projects the net income of the Eurosystem and its “top-five” national central banks over a ten-year horizon, finding that losses, while large, will be temporary and recoupable. The policy conclusions are fourfold. First, the temporary and recoupable nature of the loss-making obviates any need for capital contributions or indemnities from the state, instead allowing losses to be offset against future net income. Second, it must nonetheless be communicated that fiscal impacts will be material, with annual taxes and transfers of 0.1−0.2 percent of GDP giving way to potentially long interruptions in some cases. Third, more-conservative profit distribution policies in the future steady state could help mitigate the on-off pattern of dividends. Finally and most vitally, loss-making must remain orthogonal to monetary policy decision-making, as indeed it is at the ECB. Ultimately, credibility will rest on performance in delivering on the price stability mandate.

Subject: Central bank policy rate, Financial services, Financial statements, Income, Monetary policy, National accounts, Public debt, Public financial management (PFM), Unconventional monetary policies

Keywords: Balance sheet, Central bank independence, Central bank policy rate, Distribution policy, ECB Policy, Europe, Eurosystem, Eurosystem's net income, Financial statements, Global, Income, Monetary policy, Net purchase, Pooling reference rate, Profit distribution, QE portfolio, Rate path, Seigniorage, Selected NCBs, Unconventional monetary policies

Publication Details

Pages:

43
Volume:

---
DOI:

---
Issue:

---
Series:

Working Paper No. 2023/145
Stock No:

WPIEA2023145
ISBN:

9798400244643
ISSN:

1018-5941

FACTSHEETS

RESOURCES

TOPICS

Flagship Publications

Other Publications

IMF reports and publications by country

Regional Offices

All News

See Also

For Journalists

Press Center

RESOURCES

FLAGSHIPS

KEY SERIES

IMF NOTES

IMF Working Papers