Germany's Bundesbank used a substantial part of last year's profit to boost its risk buffer as it is increasingly concerned about the price euro zone central banks will have to pay for saving the region's banking system.
The Bundesbank's 2011 profit fell to €643 million from €2.2 billion in 2010 as it raised its provisions for risks related to credit, exchange rate, gold and other prices by €4.1 billion compared with an increase of €1.6 billion in the previous year.
"The main reason for the decline in profit is the increase in risk provisions," said Bundesbank president Jens Weidmann, who is also a member of the European Central Bank's governing council.
"The counterparty credit risks arising from the government bond purchase programme and refinancing business have increased perceptibly as a result of the larger volume and the higher degree of risk."
The ECB helped to avert a credit crunch by flooding the euro zone's banking system with over one trillion euro in cheap three-year loans for which it also loosened the rules of collateral banks can use in exchange for central bank money.
Mr Weidmann said the euro zone's debt crisis also posed a risk to the German economy, which was, however, "in remarkably good shape".
Reuters
