Around the world, central banks' balance sheets are becoming an increasingly serious concern — most notably for monetary policymakers themselves.
When the Swiss National Bank (SNB) abandoned its exchange-rate peg last month, causing the franc to soar by a nosebleed-inducing 20 percent, it seemed to be acting out of fear that it would suffer balance-sheet losses if it kept purchasing euros and other foreign currencies.
Similarly critics of the decision to embark on quantitative easing in the eurozone worry that the European Central Bank is dangerously exposed to losses on the southern eurozone members' government bonds. This prompted the ECB Council to leave 80 percent of those bond purchases on the balance sheets of national central banks, where they will be the responsibility of national governments.