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ECB to nearly double its capital reserves

17 December 2010 08:53 (UTC +04:00)

Baku - APA-Economics. The European Central Bank said Thursday that it would nearly double its capital reserves, a step that had been expected as a way for the bank to maintain its integrity as its holdings in European government bonds increase, New York Times reported.

The E.C.B. said the increase in capital to â‚¬10.76 billion, or $14.2 billion, from â‚¬5.76 billion, the first such increase in 12 years, would help it to better offset risks as the volume of its financial activities grew.

National central banks, which effectively function as E.C.B. shareholders, will supply the additional capital in three annual installments, starting Dec. 29. The E.C.B. will use its own profits to help in the financing, leaving the central banks to pay â‚¬3.5 billion over three years.

The gradual increase may be designed to deflect criticism that the increase is part of another taxpayer-financed bank bailout. But the capital increase also sends a signal to euro-zone governments, which have often depended on the E.C.B. to cope with the sovereign debt crisis, that the help is not cost-free.

The E.C.B.â€™s vulnerability to financial market risk has increased since its purchases of â‚¬72 billion in bonds from Greece, Ireland and Portugal. The action was designed to prevent markets for that debt from freezing up.