As part of its statutory duty to maintain financial stability, DNB has been responsible for macroprudential policy since 1 January 2014. This new policy area focuses on risks threatening the financial system as a whole – financial institutions, markets and infrastructure – and the interaction with the real economy. One important objective of this policy is to combat or curb systemic risk, which is the risk that problems at one or more financial institutions infect the entire financial system and the economy with it. Not all risks can be nipped in the bud, however. This is why it is equally important to make the financial system sufficiently resilient to shocks. DNB cannot prevent financial crises, but it is committed to reducing the number of crises and the resulting damage to the economy.
How does DNB combat systemic risk?
Systemic risk can have several causes. Excessive credit growth and debt financing can often lead to systemic risk, but large financial institutions may also run into trouble and contaminate their peers. This is why we monitor financial sector developments using various indicators. These are the starting point of the risk overview presented in our semi-annual Overview of Financial Stability (OFS). On the basis of the OFS, DNB can propose measures. We may for instance adjust the systemic buffers that large banks are required to maintain, or decide to activate the countercyclical buffer that enables banks to build up capital reserves during periods of prosperity.
DNB works together with other authorities in order to maintain financial stability. In Netherlands, these are the Ministry of Finance and the Netherlands Authority for the Financial Markets, with whom we work closely together in the Financial Stability Committee. The Financial Stability Committee discusses the main risks to financial stability and how they may be mitigated.
Many risks have a cross-border character. A crisis in the United States or China may for instance also threaten financial stability in the Netherlands. This is why it is increasingly important that we take a European and global perspective. DNB therefore cooperates closely with foreign parties, both on a European (European Central Bank, European Committee for Systemic Risks) and on a global level (Financial Stability Board, International Monetary Fund).