ECB may request more capital to fight Euro crisis

 
City A.M. Reporter
THE European Central Bank is considering requesting an increase in its capital to help cope with the rising costs of fighting the eurozone debt crisis, Reuters sources have said.

ECB policymakers have repeatedly signalled that the central bank cannot bear the brunt of fire-fighting against bond market attacks on highly indebted euro zone states.

“The issue is that the ECB is worried about potential losses from its bond buying,” one source said.

“At the moment we are buying very modest amounts, but what if that is increased, and what if the bonds you buy are suddenly worth 30 per cent less?” the source said, referring to the risk of a writedown on a eurozone government’s debt.

The ECB declined to comment.

One source said a doubling of the ECB’s capital was among the options being discussed.

Another said it was not clear how much the bank would ask for. Both said the request would go to eurozone member states.

The ECB’s purchases of eurozone government bonds increased to €2.667bn (£2.23bn) last week from €1.965bn a week earlier.

It was the biggest weekly total since June but well below levels seen at the height of the eurozone crisis.

Altogether, the ECB has bought €72bn in bonds – exclusively Greek, Irish and Portuguese, analysts believe – since it began intervening in May to stabilise markets.

The Frankfurt-based central bank headed by Jean-Claude Trichet has a subscribed capital of almost €5.8bn compared to a balance sheet of €138bn, according to its latest annual report.