The Central Bank reduced its investment portfolio last year by €700 million to €19 billion, largely because of European Central Bank rules relating to the balance sheets of its national central banks.
Some details of the new rules were published for the first time this weekend. The so-called “agreement on net-financial assets” (ANFA) regulates the amount of assets – apart from those necessary for the conduct of monetary policy – which the 19 central banks that are members of the euro system can hold.
The rules, details of which were previously secret, came into the spotlight in February 2013 when the liquidation of Irish Bank Resolution Corporation and the tearing up of the promissory note led to the Central Bank taking on €25 billion in Irish government bonds.
Monetary financing
There was speculation at the time about whether this was within the ANFA rules and German central bankers expressed concern that it was a form of mone
tary financing – effectively printing money to support the government’s finances.
However, in an information document accompanying the ANFA disclosures the Central Bank said it had never been in breach of the rules, which allowed for situations in which holdings may rise but obliged the return of the balance sheet to a more “normal” size over time.
The Central Bank has started to sell down government bonds taken on after the IBRC liquidation at a much faster pace than the minimum rate specified at the time. Its initial commitment was to sell €500 million a year between 2014 and 2018, but some €2 billion of the bonds were sold last year to the National Treasury Management Agency, which then cancelled them, refinancing with other borrowings.
The Central Bank statement does not give any further detail on commitments to reduce its balance sheet under ANFA rules, but it appears pressure remains to sell down the bonds taken on after the IBRC liquidation. The Central Bank is making a capital gain out of these disposals, but their sale means the interest on the bonds must be paid to third-party holders, rather than staying within the State.
The ECB revealed that the 19 national central banks held close to €500 billion in investment assets, which have grown by 5 per cent per year on average since 2002.
