What do central bankers do when they are worried? They increase their reserves.
Tuesday’s Bild Zeitung reports the Bundesbank will next Tuesday declare a sharp drop in profits after increasing provisions against risks on its balance sheet. The amount transferred to the German finance ministry would fall below €1bn, Bild said. That would be less than half the €2.2bn profit reported for 2010 – which was around half the previous year’s figures, again because of higher provisions.
The Bundesbank is not confirming Bild’s report, but it sounds plausible. Jens Weidmann, Bundesbank president, told Handelsblatt in an interview last month that the rising risks borne by Germany’s central bank would require “more rather than less provisions. That will have an equivalent impact on the level of Bundesbank profit.” Besides significantly higher provisions this year would fit with the Bundesbank president’s increasingly-cautious rhetoric more recently.