Written answers

Tuesday, 16 June 2020

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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140. To ask the Minister for Finance the amount of Irish debt held by the ECB under each quantitative easing scheme; the maturity of this debt; the interest paid both in money terms and in interest rate to the ECB in each year; and if he will make a statement on the matter. [11584/20]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I am assuming the Deputy's question refers to Irish sovereign debt. However, it should be noted that the ECB’s active asset purchase programmes also extend to the purchase of private sector assets. These purchases include covered bonds and asset-backed securities issued/originated by Irish banks, and corporate sector bonds issued by Irish non-bank corporations.

With respect to purchases of Irish sovereign debt, there are two active Eurosystem quantitative easing programmes, which involve purchases of Irish sovereign debt in the secondary market: (i) the Public Sector Purchase Programme (PSPP), and (ii) the Pandemic Emergency Purchase Programme (PEPP). Purchases under these programmes are conducted in a decentralised manner by the national central banks (NCBs) of the Eurosystem, with each NCB buying the sovereign bonds of its jurisdiction in a proportion reflecting its respective share in the ECB capital key[1], with the ECB also purchasing alongside each National Central Bank (NCB), but in smaller amounts[2] .

The Securities Market Programme is a legacy asset purchase programme, but was not a quantitative easing measure, as the liquidity created through the purchases of assets was re-absorbed by the ECB via liquidity-absorbing open market operations. While purchases are no longer conducted, there remain Irish sovereign debt holdings under this programme that are being held to maturity, and as such, some detail has been included below.

Mechanism for the sharing of monetary income

Monetary Income is the income accruing to NCBs from performing Eurosystem monetary policy operations.  The amount of each NCB’s monetary income, i.e. net income (income and expense) earned on Eurosystem monetary policy operations, is determined by measuring the actual annual income that derives from the ear-markable assets held against its liability base.

Monetary Income is shared annually, and each Eurosystem NCB receives monetary Income according to its share in the key for subscription to the ECB’s capital i.e. each Eurosystem NCB is entitled to its share in the ECB capital key.  However, if the income actually booked was higher/lower than their ECB capital key share, the reallocation process is performed with clearing and settlement done by the ECB.

The ECB is not part of the Monetary Income reallocation scheme.  The ECB earns income on monetary policy securities held, which is distributed to NCBs via the regular profit distribution rules.

Securities Markets Programme (SMP) 

Total Eurosystem SMP holdings of Irish sovereign bonds stood at €3.0 billion in book value terms as at 31 December 2019, and the holdings had an average remaining maturity of 1.6 years at that time. All purchases under the SMP are held on a shared-risk basis, which also means that all income is shared via the monetary income scheme mentioned above and redistributed amongst euro area NCBs according to their ECB capital key share. In 2019, the Central Bank of Ireland earned €53.5 million of interest income on holdings in the SMP portfolio.

Public Sector Purchase Programme (PSPP)

The securities covered by the PSPP include (i) sovereign bonds (held at own-risk) and recognised agencies, and (ii) bonds issued by international organisations and multilateral development banks located in the euro area (held with shared risk).

Total Eurosystem PSPP holdings of Irish sovereign bonds stood at €33.78 billion in book value terms as at end-May 2020, and the holdings had a weighted average maturity of 8.83 years at that time.

Under the PSPP, the majority of Irish sovereign bond purchases are conducted by the Central Bank of Ireland, as per the modalities of the programme, and are held at the Central Bank of Ireland’s own-risk. As of end-2019, the Central Bank of Ireland held €29.5 billion (market value) of Irish government bonds under the PSPP, versus total Eurosystem holdings of €32.7 billion, or circa 90% of the total purchases.

The Central Bank of Ireland earned €208.3 million of interest income on holdings of securities in the PSPP portfolio.  The fact that the Central Bank of Ireland’s holdings of Irish sovereign bonds in this portfolio are held at own-risk, means that the majority of the interest income earned on this portfolio is not subject to monetary income sharing across the Eurosystem, and ultimately contributes to the overall income of the Central Bank of Ireland, the surplus of which is payable to the Exchequer.

Pandemic Emergency Purchase Programme (PEPP)

Total Eurosystem PEPP holdings of Irish sovereign bonds stood at €3.0 billion in book value terms as at end-May 2020, and the holdings had a weighted average maturity of 7.95 years at that time.

There is no information publicly available at this point on the interest earned on purchases of public sector securities under the PEPP. However, similar to the PSPP, the majority of Irish sovereign bond purchases will be conducted by the Central Bank of Ireland, and held at own-risk.

For more information on the Asset Purchase Programmes, please see here:

For more information on the Pandemic Emergency Purchase Programme, please see here:

[1] Eurosystem capital key, which is derived from the ESCB capital key, is used as the basis of allocation for a series of important items including monetary income, banknotes in circulation and the sharing of the ECB’s profit/loss among Eurosystem NCBs. The Central Bank of Ireland’s share in the ECB capital key increased from 1.6489% to 1.6883% following the five-yearly review in 2019. (see pages 184 & 185 of the CBI’s “Annual Report 2019 and Annual Performance Statement 2019 – 2020” - for a more detailed explanation)

[2] 10% of public sector purchases are conducted by the ECB:

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