The European Central Bank recently reported its first annual operating loss since 2004.
Its losses for 2023 amounted to €1.3 billion ($1.41 billion), following the release of €6.6 billion from its provision for financial risks. In its accounting treatment of this loss, the ECB is relying on the same misleading fudge as the United States Federal Reserve Board, which has conjured up a “deferred asset” category to deal with excessive losses.
As the ECB press release explained, this loss “will be carried forward on the ECB’s balance sheet to be offset against future profits.” This means that a loss was entered as a positive asset, even though the sensible alternative would have been to enter it as negative retained earnings in the shareholders’ equity section on the liabilities side of the balance sheet.
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