Systemically relevant financial systems
Every five years, the IMF carries out an FSAP in countries with systemically important financial systems. Currently there are 29 such countries, including the Netherlands. During an FSAP, IMF experts assess the financial health of a system's individual institutions and the quality of supervision. It is part of the IMF's surveillance remit, which is to contribute to global financial stability through regular monitoring. The FSAP outcomes have been adopted by the IMF's Board of Executive Directors, in which all IMF member countries are represented. The reports can be found on the IMF's website.
The IMF experts take a positive view of the financial resilience of the Dutch banking sector, based on the stress tests to which they subjected the Dutch banks. These tests simulate the impact of hypothetical shocks on the banks' capital positions. They found the Dutch banking sector to be well-capitalised: all banks held well above the minimum core capital level of 7%. The IMF noted, however that the sector's financial leverage (the ratio between debt and equity) is relatively high, and for that reason recommends to increase banks' unweighted capital buffers still further. This ties in with DNB's own policy to increase the unweighted equity capital for four system relevant banks to a minimum of 4% of their bank balance sheets. According to the IMF, the low interest rate environment, the high level of Dutch household debt and banks' dependence on market funding are the main risks to financial stability in the Netherlands.
Supervision strengthened following the crisis
The IMF also concluded that major and far-reaching improvements have been implemented in supervision of the financial sector over the past five years in response to the crisis. Examples include the single European supervisory and resolution mechanisms, the new supervisory framework for insurance companies, and the development of macroprudential supervisory instruments. The IMF calls on the Dutch authorities to continue along this path of progress in the years to come.
Recommendations for the Netherlands
Based on its findings, the IMF has issued several important recommendations to the supervisory authorities. Firstly, it supports the Dutch Financial Stability Committee's advice to lower the loan-to-value (LTV) ratio further to 90% after 2018, and to accelerate the reduction of mortgage interest tax relief. Both measures will make households more resilient to financial shocks according to the IMF.
In addition, the IMF calls on the supervisory authorities to monitor the developments in the vulnerable insurance sector well and welcomes the legislative proposal that will make it possible for insurers to be resolved. The IMF further advises to strengthen the operational independence of the supervisory authorities. DNB, together with the government and the AFM, will give follow-up to these recommendations.