DNB publishes its Financial Stability Overview Spring 2012

Press release
Date 10 May 2012

Financial stability in the Netherlands is under persistent pressure from the European debt crisis, concerns over the adaptability of Dutch financial institutions and the weakening debt positions of both households and the government.


  • Acute risks in the European debt crisis have been averted, yet underlying vulnerabilities in the banking sector and monetary union persist.
  • Banks, life insurers and pension funds urgently need to increase financial buffers.
  • Dutch households, especially young ones, run increasing risks from high mortgage indebtedness.

These and other themes are explored in the Overview of Financial Stability (OFS) published today by De Nederlandsche Bank (DNB). Through this overview, DNB seeks to promote financial stability in the Netherlands by monitoring and identifying the most important risks to the financial system. 

The European debt crisis continues to be the largest single threat to financial stability, due to the economic interconnectedness of the Netherlands with Europe. Although acute risks from the crisis have been averted by the large-scale ECB interventions, underlying problems in both the banking sector and the monetary union have persisted. The European banking sector has insufficiently regained market confidence and is too dependent on central bank funding. Europe has low growth potential while confidence, which is crucial for recovery from the crisis, remains subdued. The current situation requires consolidation of government budgets, strengthening of growth potential and competitiveness, and reform of weak banks. Crucially, the momentum in implementing these measures must be maintained.
Dutch financial institutions must ensure they remain resilient in the future, given the expected weak economic recovery. Banks and life insurers urgently need to strengthen their capital buffers. In banking, capital ratios have hardly risen, whereas capital reinforcement is essential if banks are to ensure the continued confidence of financiers given their dependence on market funding. The capital position of the life insurance industry is under pressure from high guarantees provided and disappointing investment performance in combination with low interest rates. Many pension funds have also faced funding shortfalls in recent years, due to low interest rates and lower than expected returns. Far-reaching measures are needed to strengthen these sectors’ financial buffers.
The Dutch debt position also raises concerns. Government finances have rapidly deteriorated since the eruption of the crisis. Dutch households are vulnerable as a result of high mortgage debts, disappointing economic growth and falling house prices. Young households, in particular, currently face negative equity on their homes, while their savings are low and a relatively large share of their income goes to interest payments. Reforms are required to ensure lower household mortgage debts, so that taking out mortgage loans will no longer create unnecessary risks for individual households. This will make it possible to reverse the rising trend in nation-wide mortgage indebtedness and to make it compatible with a sustainable long-term funding model for banks.
The measures recently proposed by Parliament aimed at mitigating the risks posed by the weak public finances and high mortgage debts are welcomed. Implementation of these measures will contribute to financial stability.