ECB Capital

I’ve been reading up some on ECB capital.

Seems a minimum capital level for the ECB is not specified.

However, the ECB distributes profits ultimately to the national govts.

And that ECB losses are ultimately the responsibility of the national govts.

That’s why, faced with potential losses, the ECB has required the national central banks to advance additional capital to the ECB.

However, in the event of losses, the ECB is not required to call for capital from its members, but as a matter of policy the ECB has called for capital from its members when it deemed the risk of losses had risen.

So while the ECB, like the Fed, can, operationally, allow its capital to go negative without operational consequence. The ECB, unlike the Fed, looks to keep it’s capital positive by requiring contributions from its members.

This therefore means, for example, that should the ECB realize losses on its Greek bonds, it will demand additional capital from the national central banks/national govs. which will further erode their solvency.

The reason for this seems to be the notion that ECB losses left as negative capital would otherwise be inflationary.

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