In order to assess the ECB's ability to replenish capital in the event of a large loss, we estimate the ECB's low risk revenue going forward. This measure excludes interest income from the purchase of sovereigns, but also the potential losses from those purchases. The result is expressed in terms of a function of the MRO rate (the policy rate).
The low risk income consists of:
- The MRO rate applied to 8% of the Eurosystem's outstanding banknotes (€73 billion* at the end of 2012).
- Interest income on its all-in equity of €39bn; this includes capital and reserves, provisions and the revaluation account, at the MRO rate.
- Interest on foreign exchange reserves minus remuneration of the NCBs at .85% of the MRO rate for those reserves. This totals about zero. (The ECB lost around €100 million on this in 2012.)
The low risk revenue of the ECB is €113 billion x MRO rate.This is about €.85 billion at the current MRO rate.
There is net income of zero to the ECB on its offsetting TARGET2 assets and liabilities to NCBs, except in the case of a TARGET2 loss to the ECB (e.g., from a country departure and repudiation). (The ECB does report an imbalance in its TARGET2 assets and liabilities that is derived from fx swap transactions, but these transactions are matched and should earn the ECB no income; see note 6.2 in the annual accounts, link below.)