ECB unveils five-billion-euro capital increase

16th December 2010, Comments 0 comments

The European Central Bank said Thursday that it will nearly double its subscribed capital by 2013 due to greater volatility in financial markets and interest rates, and heightened credit risks.

An ECB statement said the bank would increase its subscribed capital by five billion euros (6.6 billion dollars) to 10.76 billion euros in three stages over the next two years, its biggest capital increase ever, and the first general hike in 12 years.

"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," it added.

Exceptional measures including a massive boost in loans to commercial banks and the purchase of corporate and sovereign bonds has raised the level of risk carried by the ECB, and the move should provide a buffer against potential losses, economists said.

The bank will also be able to raise provisions against losses by an equal amount, "starting with the allocation of part of this year's profits," which will provide an extra safety cushion.

The increase was "motivated by the need to provide an adequate capital base in a financial system that has grown considerably," the statement said.

Following an initial increase in contributions by members of the European System of Central Banks on December 29, two more installments are to be paid at the end of 2011 and 2012, the bank said.

They are to total 1.163 billion euros per year, with each central bank contributing according to its share in the ECB's capital.

Germany is the biggest contributor, with 18.9 percent at present, followed by France and Italy, with 14.2 percent and 12.5 percent, respectively.

The eurozone will grow on January 1 to 17 members, with the adhesion of Estonia.

Central banks in countries that do not belong to the eurozone, such as Britain and Denmark, will see the percentage of their contributions fall from seven percent to 3.75 percent.

© 2010 AFP

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