Annual Accounts of the European Central Bank for the year ending 31 December 2006

8 March 2007

The Governing Council of the European Central Bank (ECB) today approved the audited Annual Accounts of the ECB for the year ending 31 December 2006.

The ECB earned a surplus of €1,379 million in 2006. This result compares with a surplus of €992 million earned in 2005. As in 2005, an amount equivalent to the surplus was set aside in a provision against foreign exchange rate, interest rate and gold price risks, leaving a declared net profit of exactly nil. The provision will be used to cover losses arising from the exposure to these risks, in particular valuation losses not covered by the revaluation accounts. Its size will be reviewed annually.

The ECB’s regular income is derived primarily from investment earnings on its holding of foreign reserve assets and its paid-up capital of €4.1 billion, and from interest income on its 8% share of the euro banknotes in circulation. Interest income in 2006 improved as a result of the increase in the marginal rate for the Eurosystem’s main refinancing operations, which determines the remuneration that the ECB receives on its share of euro banknotes in the Eurosystem, and higher interest rates on US dollar-denominated assets.

The ECB earned total net interest income of €1,972 million from all sources, compared with €1,270 million in 2005. Excluding the interest income of €1,319 million earned on the share of banknotes in circulation, net interest income amounted to €653 million, compared with €402 million in 2005. The ECB paid remuneration of €965 million to the national central banks (NCBs) on their claims in respect of the foreign reserve assets transferred by them to the ECB.

In 2006, the appreciation of the euro vis-à-vis the Japanese yen resulted in write-downs in the euro value of the ECB’s holdings of yen-denominated assets of some €0.6 billion, which were expensed in the Profit and Loss Account. Including unrealised price losses on securities, total write-downs of €0.7 billion were expensed in the year.

The ECB’s administrative expenses on staff, rental of premises, professional fees, and other goods and services amounted to €332 million (€316 million in 2005). At the end of 2006, the ECB employed the full-time equivalent of 1,367 staff on permanent or fixed-term contracts (including 138 at managerial levels) compared with 1,351 one year earlier. Depreciation charges on fixed assets amounted to €29 million.

The Annual Accounts will be published, together with a management report for the year ending 31 December 2006, in the ECB’s Annual Report on 23 April 2007.

Notes for editors

  1. Accounting policies of the ECB: Common accounting policies have been established by the Governing Council for the Eurosystem, including the ECB, in accordance with Article 26.4 of the Statute of the European System of Central Banks and of the European Central Bank (Statute of the ESCB), and have been published in the Official Journal of the European Union. [1] Although generally based on internationally accepted accounting practice, these policies were designed with special regard to the unique circumstances of the central banks of the Eurosystem. They pay particular attention to the issue of prudence given the large foreign exchange exposures of most of these central banks. This prudent approach applies particularly to the differing treatment of unrealised gains and unrealised losses for the purpose of recognising income, and to the prohibition against netting unrealised losses on one asset against unrealised gains on another. Unrealised gains are transferred directly to revaluation accounts, whereas unrealised losses at year-end that exceed revaluation account balances are treated as expenses. All NCBs are required to follow these policies for the purpose of reporting their operations as part of the Eurosystem, which are included in the Eurosystem’s weekly consolidated financial statements. All NCBs voluntarily apply broadly the same policies as the ECB in preparing their own annual financial statements.
  2. Remuneration of foreign reserve assets transferred to the ECB: On transferring foreign reserve assets to the ECB upon joining the Eurosystem, each NCB acquires a remunerated claim on the ECB equivalent to the amount it transfers. The Governing Council has decided that these claims should be denominated in euro, and should be remunerated on a daily basis at the latest available marginal rate for the Eurosystem’s main refinancing operations, adjusted to take account of the zero rate of return on the gold component. In 2006 this remuneration resulted in an interest expense of €965 million, compared with net interest income of €1,318 million earned on the foreign reserve assets.
  3. Distribution of the ECB’s income on euro banknotes in circulation: The Governing Council decided that, from 2006, this income is due to the NCBs in the financial year in which it accrues, but is to be distributed on the second working day of the following year. [2] It is distributed in full unless the ECB’s net profit for the year is less than its income earned on euro banknotes in circulation. The latter was the case in 2006, due to the decision by the Governing Council to make transfers to the provision for foreign exchange rate, interest rate and gold price risks. Based on the ECB’s estimated financial result for the year, the Governing Council decided in December 2006 to withhold distribution of the whole of this income.

[1] Decision ECB/2002/11 of 5 December 2002 on the annual accounts of the European Central Bank, OJ L 58, 3.3.2003, p. 38, as amended. With effect from 1 January 2007, this Decision was repealed and replaced by Decision ECB/2006/17, OJ L 348, 11.12.2006, p. 38.

[2] Decision ECB/2005/11 of 17 November 2005 on the distribution of the income of the European Central Bank on euro banknotes in circulation to the national central banks of the participating Member States, OJ L 311, 26.11.2005, p. 41. This Decision repealed Decision ECB/2002/9.

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