Annual accounts of the European Central Bank for the year ending 31 December 2004
The Governing Council of the European Central Bank (ECB) approved on 11 March 2005 the audited annual accounts of the ECB for the year ending 31 December 2004.
The ECB made a net loss of €1,636 million in 2004, compared with a net loss of €477 million in 2003. This loss was again due primarily to the evolution of exchange rates, which adversely affected the value, expressed in euro, of the bank’s holdings of assets denominated in foreign currencies, principally the US dollar.
The ECB’s accounting policies pay particular attention to the principle of prudence. Accordingly, unrealised exchange rate and market price revaluation losses on the ECB’s holdings of foreign currency assets and gold are treated as realised and taken to the profit and loss account at year-end. However, unrealised exchange rate and market price revaluation gains on the ECB’s holdings of foreign currency assets and gold are not recognised as profit, but transferred directly to revaluation accounts. In 2004 the appreciation of the euro resulted in net exchange rate revaluation losses of almost €2.1 billion.
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 2004 was again adversely affected by low interest rates on both domestic and foreign currency assets. The ECB earned total net interest income of €690 million from all sources, compared with €715 million in 2003. Excluding interest income of €733 million earned on the share of banknotes in circulation, net interest expense amounted to €43 million, compared with net income of €17 million in 2003. The ECB paid remuneration of €693 million to the national central banks (NCBs) on their claims in respect of the foreign reserve assets transferred by them to the ECB.
The ECB’s administrative expenses on salaries and related costs, rental of premises, and goods and services amounted to €340 million (€286 million in 2003). The main single factor in this increase was a provision against a rise in the ECB’s pension fund obligations, calculated on an actuarial basis. Depreciation charges on fixed assets amounted to €34 million. At the end of 2004, the ECB employed 1,309 staff (including 131 at managerial levels) compared with 1,213 one year earlier.
On 11 March 2005, the Governing Council decided, first, to offset the ECB’s net loss of €1,636 million against its entire general reserve fund of €296 million and, second, to offset the remaining loss of €1,340 million against the monetary income allocated to national central banks for the financial year 2004 in proportion to the amounts allocated to each national central bank.
The annual accounts will be published, together with a management report for the year ending 31 December 2004, in the ECB’s Annual Report on 26 April 2005.
Notes for editors
- 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. 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. All national central banks (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.
- Remuneration of foreign reserve assets transferred to the ECB: On transferring foreign reserve assets to the ECB upon joining the Eurosystem, each NCB acquired a remunerated claim on the ECB for the value of the amount it transferred. The Governing Council has decided that these claims should be denominated in euro, and should be remunerated on a daily basis at the latest main refinancing rate of the Eurosystem, adjusted to take account of the zero rate of return on the gold component. In 2004 this remuneration resulted in an interest expense of some €693 million, compared with net interest income of €422 million earned on the foreign reserve assets.
- Distribution of the ECB’s income on euro banknotes in circulation: The Governing Council has decided that this income shall be distributed separately to the NCBs in the form of an interim distribution after the end of each quarter. It will be distributed in full unless the ECB’s net profit for the year is less than its income earned on euro banknotes in circulation, and subject to any decision by the Governing Council to reduce this income in respect of costs incurred by the ECB in connection with the issue and handling of euro banknotes. Based on the ECB’s estimated financial result for the year ending 31 December 2004, the Governing Council decided in December 2004:a) to recall the three interim quarterly distributions already paid to the NCBs during the year amounting to €536 million in total;b) to withhold the final quarterly interim distribution of €197 million.
- Allocation of losses: Under Article 33.2 of the Statute of the ESCB, a loss incurred by the ECB is to be covered in the following order: The loss may be offset against the general reserve fund of the ECB and, if necessary, following a decision by the Governing Council, against the monetary income of the relevant financial year. If monetary income is used to offset a loss, the amounts allocated to the NCBs for the financial year in question are reduced in proportion to their weightings in the ECB’s capital key. The Governing Council decided in principle at its meeting on 13 January 2005 that it would fully offset the ECB’s final loss for 2004 with monetary income to the extent necessary after the full use of the general reserve fund. NCBs were accordingly able to make appropriate provision in their own annual accounts for 2004 before they were closed.
 Decision of the European Central Bank of 5 December 2002 on the annual accounts of the European Central Bank (ECB/2002/11), OJ L 58, 3.3.2003, p. 38.
 Decision of the European Central Bank of 21 November 2002 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 (ECB/2002/9), OJ L 323, 28.11.2002, p. 49.