DNB publishes Quarterly Bulletin September 2010

Press release
Date 15 September 2010

The Quarterly Bulletin opens with its regular reports on economic developments, prudential supervision of the financial sector and payments.

Other issues covered include:

  • Basel III and the economy
  • Knowledge about monetary policy: important yet inadequate
  • The impact of tax-relieved bank saving on the Dutch banking and insurance sector
  • Responsibilities of DNB on the BES islands after 10-10-10
  • Enhanced coordination on macroeconomic imbalances in the euro area
  • More supervisory attention for business model and strategy

Basel III and the economy

The implementation of more stringent trade and liquidity standards at banks, i.e. Basel III, leads to stable economic growth and diminishes the risk of a systemic crisis. During the transition phase, banks must adjust to meet the new requirements and the economy will experience some nuisance. Model calculations show, however, that the negative effect on the level of GDP in that phase will be limited to several tenths of a percentage. A sufficiently long transition phase will limit these costs, as banks will have more time to adjust. In the long run, therefore, the advantages of a more robust financial system will prevail. This appears from research carried out by Basel working groups and De Nederlandsche Bank (DNB).

Knowledge about monetary policy: important but inadequate

The Dutch public is ill-informed about the main objective of the European Central Bank (ECB) according to research by DNB. Yet, having such knowledge is important, as people who know more about monetary policy have more realistic expectations about future price developments. This will help them take sensible financial decisions and thus contribute to financial stability. Achieving price stability is easier if the public is well aware of ECB policy.

The impact of tax-relieved bank saving on the Dutch banking and insurance sector

The Dutch market for tax-facilitated asset building is rapidly changing. Since the introduction of the Wet Banksparen [Bank (Mortgage and Pensions) Savings Act] in January 2008, life insurers are increasingly faced with competition from banks and investment firms in this market. As a result, the new sales and profitability of life insurers are structurally under pressure. This sector is therefore on the brink of an adjustment process. Banks profit from bank saving as the attracted funds form a long-term and relatively stable funding source. For the consumer, bank saving seems to yield lower costs as a result of increasing competition. Still, due to the variety of product types and suppliers the market remains complex.

Responsibilities of DNB on the BES islands after 10-10-10

The Kingdom of the Netherlands is on the threshold of a large political reform. On 10 October 2010 (‘10 10-10’), the islands of Curaçao and Sint Maarten – just like the Netherlands and Aruba – will become independent countries within the Kingdom, while the islands Bonaire, Sint Eustatius and Saba, collectively referred to as the BES islands, will become 'special municipalities' of the country of the Netherlands. For DNB, the political reform implies that it will also become responsible for supervision of financial institutions on the BES islands and for the implementation of several central bank tasks. The introduction of the American dollar as legal tender in this part of the Netherlands, effective from 1 January 2011, but also other institutional differences between the Caribbean and the European parts of the Kingdom, will make the implementation of DNB’s tasks in the Caribbean part of the Netherlands particularly special.

Enhanced coordination on macroeconomic imbalances in the euro area

The European debt crisis shows that for EMU to work effectively, stronger coordination is required on macroeconomic imbalances, such as the sharply increased deficits and surpluses on the Member States' current accounts. The European Commission recently made some proposals for enhanced coordination, which are now being elaborated on by the Van Rompuy Taskforce. DNB finds it important to signal imbalances in good time through a limited range of indicators with straightforward signal values. Effective procedures are required to spur countries into action, if necessary by imposing sanctions.

More supervisory attention for business model and strategy

One of the lessons learned from the crisis is that supervision, more than before, must transcend institutional barriers and look ahead. For one thing, this means more attention for business models and strategies of institutions. The supervisor will not take over the helm of directors but pose probing questions about the institution’s money making model and strategic choices. If necessary, the institution will be asked to implement changes.

Also in this Quarterly Bulletin:

  • Pension funds’ funding ratio falls to 95%.
  • Higher expenses put pressure on banks’ profit recovery.
  • End date of Dutch payment products is near.

End of press release

For further information, please contact Tobias Oudejans, tel. +31 (0)20 5243100 or +31 (0)652496961, or Herman Lutke Schipholt, tel. +31 (0)20 5242712 or +31 (0)652496900.