AMERICA’s Federal Reserve Board helped its central banking comrades at the European Central Bank to turn a hefty profit in 2005 but the ECB has used creative accounting to pretend that it never happened.

Higher American interest rates more than doubled the ECB’s income on foreign exchange reserves, which are held predominantly in dollar securities. Total interest income, including its share of euro banknote deposits, climbed from €690 million (£480 million) to €1.27 billion. This helped to boost profits to €992 million for the year.

In 2004 the ECB reported a €1.64 billion loss, incurred mainly because the euro was strong and the value of its foreign exchange reserves expressed in euros therefore fell. In 2005 the Bank made a €134 million profit from sales of gold and securities. But Jean-Claude Trichet, the President, and his colleagues on the ECB board seem to have been so embarrassed by the loss that they have set aside extra reserves to be used to counter any future exchange losses.

The extra provision required was calculated at €992 million, leaving the reported profit/loss at exactly zero. To pay for it at the end of the year, the eurozone central bank had to claw back €634 million it had already paid out to national central banks in the single currency area, whose foreign currency reserves it borrows.

The ECB uses a system of accounting laid down in the statutes that created it after the 1992 Maastricht treaty. If such a coincidence was reported at a commercial bank using International Accounting Standards, eyebrows would be raised. The bank said in its accounts that the appropriate size of the reserve created by the transfer would be reviewed annually “based on generally accepted methods for estimating financial risks”.

Staff numbers rose again in 2005, from 1,309 to 1,351, but their accounting cost fell from €161 million to €153 million, mainly because pension costs have been accounted differently. Administrative costs also dipped from €176 million to €158 million also mainly for accounting reasons.

The euro system has been heavily criticised for costly overstaffing. But these complaints are aimed less at the ECB itself than at the Banque de France and other national banks, which have largely maintained staff numbers even though many of their functions have gone to the ECB in Frankfurt.

ECB board members are also crossing their fingers in the hope that costs will not escalate when the central bank moves from temporary premises in Frankfurt to its own distinctive new building.

So far, the ECB has entered only €11.6 million work in progress on the landmark building in its accounts.

BANKING PROFITS

Running costs were €312 million, split equally between staff and administrative costs