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Does central bank capital matter? (Part 2)
Part 1 in this series demonstrated how, why and when the stocks of and flows resulting from asset purchase programmes may create challenges around central bank profitability. These risks concern default risk on euro area sovereigns in the former, and interest risk resulting from balance sheet mismatches in the latter. In part 2 we explore whether these risks matter and what can be done to mitigate them where they arise. First, it is important to distinguish between unrealised and material losses. Losses on the stock of government bonds would only materialise in the case of a sovereign default, or, more plausibly, if ... (full story)