The IMF indisputably arrives at a positive assessment of the financial sector in the Netherlands. Banks have used the recent period to strengthen their capital position. By recovering profits, not paying out dividends and attracting new capital, the sector has succeeded in considerably improving its current capital position. The IMF has performed various calculations, by which it estimated the consequences of external financial shocks. These show that the sector is well placed to even absorb relatively severe shocks.
So, according to the IMF, the financial sector is robust. But at the same time the IMF also warns about the housing market and the high level of mortgage debt in the Netherlands. Can you explain?
The IMF concludes that Dutch households’ indebtedness is relatively high, notably because of the preferential tax treatment of mortgages. At the same time, considerable funds are saved in separate capital accounts intended for (partly) redeeming the mortgage. Moreover, despite the heavy pressure in recent years, developments in the housing market have been relatively moderate. The key aim is to maintain the right balance in the housing market and to gradually introduce reforms to reduce debt positions. The recent proposals to set a maximum loan-to-value ratio and stimulate building up resources are, also in the IMF's view, good examples of measures to mitigate financial risks.
The IMF has also made an assessment of supervision in the Netherlands. Why did the Netherlands request the IMF to do so?
DNB is engaged in an intensive programme of reform and wants to make use of external assessments. The IMF’s assessments offer useful insights. They give a fresh outside perspective by experienced professionals who have often worked in supervision themselves for many years.
The analysis of the supervisory framework conducted by the IMF is effected by assessing the supervisory framework of a country against international regulatory standards. These are the key elements agreed on by the international supervisory organisations, such as the Basel Committee. This is done based on a well-documented methodology and in a consistent fashion, making the results objective and suitable for international comparison. The result confirms that supervision in the Netherlands has a high level of observance with international regulatory standards. The assessment of the Netherlands is also favourable in an international comparison.
The financial sector in the Netherlands was hit strongly over the past few years and supervision came under criticism. Why does the IMF come to such a positive assessment of supervision?
The Netherlands has an effective supervisory framework. An extensive reform of supervision was carried out over the past few years, including the introduction of the Wet op het Financieel Toezicht or Wft [Financial Supervision Act] and the modernisation of the supervisory model. This model draws much international attention. At the same time, the global financial crisis was so widespread, that the Netherlands, with its extensive financial sector, did not escape it.
The lessons from the crisis will be used worldwide to tighten regulation and supervision. This will also lead to further reinforcements in the Netherlands. The IMF concludes in its report that the current supervisory model offers a good basis. The IMF’s examination also provides significant support for the reforms in supervision now being realised by DNB.
What will be the main challenges in the coming period and what does the IMF think of DNB's recent plans to tighten supervision?
Given the size and international nature of the financial sector, many risks are found in the external environment. DNB will need to remain actively involved internationally in the design and elaboration of the regulations and in the international supervision of financial groups, keeping in close contact with its fellow supervisors.
DNB last year presented an update of its vision on supervision (DNB Supervisory Strategy 2010-2014) and an Action Plan to make supervision more intrusive and conclusive. To this end, changes in the organisation were made on 1 January 2011, including the creation of a separate department with specific responsibility for interventions. These changes will strengthen DNB’s ability to safeguard financial stability. The IMF explicitly welcomes this renewed vision and supervisory approach. Important changes that are also being worked on at present are the reinforcement of the crisis management framework, the practical implementation of macro-prudential policy and the improvement of the data supply.