FRANKFURT (MNI) – As was widely expected, the European Central Bank
today announced that it has decided to increase its subscribed capital
by E5 billion to E10.76 billion over the next three years.
It said the decision was “deemed appropriate” given an increase of
volatility in foreign exchange markets, interest rates and gold, as well
as credit risk.
The national central banks of Eurozone countries, which are
required to pay in 100% of their capital subscription shares, will do so
in three instalments — the first one on December 29 of this year, the
next at the end of 2011, and the third at the end of 2012.
The bank noted that the capital paid in as a result of the increase
will allow the ECB to boost its provision against potential losses by
the amount of the increase.
National central banks in the non-Eurozone EU countries, which also
share in the ECB’s capital, will be required to pay in a minimum of
3.75% of their subscribed share, down from 7%. That means the non-euro
central banks will have only “minor” adjustments to their capital share
in the ECB, the bank noted.
The ECB said the capital increase, the first in twelve years, was
also appropriate given how much larger the financial system in Europe
has grown since then.
The central bank said the capital increase decision resulted from
an assessment of capital adequacy conducted in 2009.
The announcement, which was expected, comes amid speculation in
markets that the ECB is increasingly worried by its growing exposure to
troubled peripheral Eurozone sovereign debt, through its bond purchasing
program. The bank has been active in recent weeks given renewed
turbulence in the markets, and the accumulated volume of bonds it has
purchased since launching the plan in May now stands at E72 billion.
A verbatim text of the ECB announcement is below:
“The European Central Bank (ECB) has decided to increase its
subscribed capital by E5 billion, from E5.76 billion to E10.76 billion,
with effect from 29 December 2010. This decision was taken by the
Governing Council of the ECB in accordance with the Statute of the
European System of Central Banks and the ECB, as well as the Council
Regulation No 1009/2000 of 8 May 2000 that foresees an increase in the
capital of the ECB by up to this amount.
This decision resulted from an assessment of the adequacy of
statutory capital conducted in 2009. The capital increase was deemed
appropriate in view of increased volatility in foreign exchange rates,
interest rates and gold prices as well as credit risk. As the maximum
size of the ECB’s provisions and reserves is equal to the level of its
paid-up capital, this decision will allow the Governing Council to
augment the provision by an amount equivalent to the capital increase,
starting with the allocation of part of this year’s profits.
From a longer-term perspective, the increase in capital — the
first general one in 12 years — is also motivated by the need to
provide an adequate capital base in a financial system that has grown
considerably.
In order to smooth the transfer of capital to the ECB, the
Governing Council decided that the euro area national central banks
(NCBs) should pay their additional capital contributions of
E3,489,575,000 in three equal annual instalments. Consequently, the
current euro area NCBs will pay E1,163,191,667 as their first instalment
on 29 December 2010. The remaining two instalments will be paid at the
end of 2011 and 2012, respectively.
Moreover, the minimal percentage of the subscribed capital, which
the non-euro area NCBs are required to pay as a contribution to the
operating costs of the ECB, will be reduced from 7.00% to 3.75%. The
non-euro area NCBs consequently will make only minor adjustments to
their capital shares, which will result in payments totalling E84,220 on
29 December 2010.
The relevant ECB decisions and legal instruments will be published
in the Official Journal of the European Union and on the ECB’s website
in due course.”
–Paris newsroom, +331-42-771-55-40; paris@marketnews.com
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