ECB to consider asking for capital increase as cushion
FRANKFURT: The European Central Bank is considering asking euro-region members for a capital increase to protect itself from any losses stemming from its government bond purchases, said a euroarea central bank official with knowledge of the talks.
The Frankfurt-based ECB's subscribed capital amounts to 5.8 billion euros ($7.8 billion), according to its website. No decision has yet been made on whether to ask for a capital increase, said the official, who spoke on condition of anonymity. The matter may be discussed at the next Governing Council meeting on Dec. 16, the person said. The debate suggests the ECB is concerned its program to buy the bonds of strained governments such as Portugal and Ireland, which now totals 72 billion euros, may end up saddling its balance sheet with losses. Bundesbank President Axel Weber opposed the purchases when they were started in May and the risk is that seeking government support raises new questions about the ECB's independence from politics.
"The link to this potential hike in ECB capital and what's going on in the markets is certainly the fact that the ECB is buying government bonds which are not AAA-rated and are more risky than bunds," said Marco Valli, chief euro zone economist for UniCredit SpA in Milan. The ECB's potential capital request was reported by Reuters late yesterday. -PB News