Worst performance in history! The European Central Bank records a loss for the third consecutive year, setting the longest streak of losses since its establishment.

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Burdened by the lingering effects of crisis-era policies, the European Central Bank has reported an annual loss for the third consecutive year, marking the longest losing streak since its inception.

According to Bloomberg, the ECB announced in a statement on Thursday that the loss for 2025 is 1.3 billion euros (about 1.5 billion U.S. dollars). This figure is a significant narrowing compared to the previous year's record-high loss of 7.9 billion euros.

The ECB reiterated that it can continue to operate effectively regardless of whether it reports a loss. As in previous years, the funding shortfall for 2025 will remain on the ECB’s balance sheet to offset future profits. As a result, the ECB will not distribute profits to the national central banks of its member states this year.

Regarding its future financial outlook, the ECB expects to return to profit in either this year or in 2027. The specific timing will depend on the levels of the ECB’s key interest rates and foreign exchange rates in the future, as well as the size and composition of its balance sheet.

“Aftereffects” of Crisis Policy and the Outlook for Quantitative Easing

Like other major central banks, the ECB is currently paying more in interest than it earns from bonds bought during past emergencies at low borrowing costs. Although this asset-liability mismatch is expected to persist, as inflation stabilizes near the target level, policymakers have lowered the benchmark borrowing cost from 4% to 2%, and the balance sheet has continued to shrink, making this financial pressure less acute.

The consecutive losses have also sparked discussions about central bank independence and policy tools. Some policymakers have urged greater caution regarding future asset purchases, and the market is even speculating that the central bank may eventually require government recapitalization, which would jeopardize its independence.

In last year’s strategic review, the ECB retained all policy tools including quantitative easing (QE), but did not specify under what conditions they should be used. However, comments in the review and some officials’ statements suggest that, considering the chain reactions such as losses and asset bubbles, the use of quantitative easing policies is likely to become more restrained in the future.

Volatility in Gold and Forex Markets Hits the Bottom Line

Sharp fluctuations in gold and exchange rates had a significant impact on the ECB’s profitability last year. Boosted by rising prices, the euro-equivalent value of the ECB’s gold reserves increased by 46%, reaching just under 60 billion euros.

At the same time, the ECB’s holdings of U.S. dollars and Japanese yen declined, mainly due to the depreciation of the dollar and yen. As part of routine rebalancing of foreign exchange reserves, the ECB sold dollars in the first quarter of 2025, realizing a profit of 909 million euros, with all proceeds reinvested in the yen.

Notably for investors, although the ECB currently still has some provisions to guard against future dollar weakness, its buffer to cope with further declines in the yen has been completely depleted. This means that if the yen continues to depreciate in the future, the ECB will be directly exposed to new loss risks.

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