Financial stability outlook remains concerning

DNB President Olaf Sleijpen noted: "Global uncertainty has reached levels not seen in decades, spanning multiple domains. As a result, the probability of shocks to the economy and financial system remains elevated. The question is no longer whether such shocks will occur, but when and where. We need to be prepared, and that means ensuring the financial and digital resilience of the financial sector, governments and society as a whole. And DNB is no exception. Maintaining this resilience, in close cooperation with our European partners, is key.”

Economic uncertainty remains

Economic uncertainty remains elevated, driven by fragmentation in international trade. Confidence among consumers and businesses is under pressure amid re-escalating disputes over tariffs and trade restrictions. At the same time, complex digital and hybrid threats are becoming more prevalent, with financial institutions also in the crosshairs.

Equity markets, particularly in the United States, have reached historically high valuations in recent months. Combined with persistent uncertainty, this leaves markets vulnerable to abrupt corrections. Additionally, public debt refinancing costs are rising across many jurisdictions, with concerns increasing about the sustainability of French sovereign debt in particular. Moreover, institutional frameworks – including the independence of the US Federal Reserve – are under strain, which could have direct repercussions for the Dutch financial system through the US government bond market.

Dutch financial sector is well positioned

A markedly positive aspect is that banks maintain robust capital buffers and ample liquidity, while insurers and pension funds also exhibit strong fundamentals. However, vulnerabilities persist in the interconnectedness between banks and non-bank financial intermediaries. These linkages are being reinforced by various factors, including the growth of private credit in which underlying exposures are not always clear. This requires thorough risk management, with sufficient emphasis on potential leveraged financing and interdependencies in portfolios.

Stablecoins: emerging risks and opportunities

The stablecoin market continues to expand rapidly, exceeding $300 billion globally, predominantly in the United States. Stablecoins are a type of crypto pegged to a currency – typically the US dollar. Backed by (mostly US) government bonds, bank deposits and other instruments, they are primarily used for crypto-asset transactions. Large-scale redemptions could trigger forced asset sales and abrupt market fluctuations. While these instruments pose risks, their underlying technologies offer potential for more efficient cross-border payments, provided regulatory frameworks are uniformly implemented.

Sustaining competitiveness is crucial

In an uncertain global environment, the Netherlands benefits from European cooperation and a competitive economy. The Dutch economy is well positioned, and the corporate sector has a competitive edge in terms of price, quality and innovation, underpinned by strong institutions, high education levels, and an open market. However, this position is challenged by low productivity growth, rising export prices and uncertainty about economic policy.

Structural reforms and targeted investment in capital goods, knowledge, and skills are essential to sustain competitiveness. The government can accelerate procedures and support business innovation financially, provided such support is targeted and fiscal policy remains balanced.

Strengthening European cooperation

Deeper European cooperation in three areas is vital to Dutch competitiveness. First, completing the single market and harmonising national rules will help companies expand across borders at lower cost. Second, deepening and integrating European capital markets will make it easier and cheaper for firms to raise risk-bearing finance, while encouraging retail investment and collective retirement savings across Europe will boost the availability of venture capital. Third, it is worth exploring ways to simplify European banking regulations, provided that the financial sector’s resilience is not compromised.