De Nederlandsche Bank (DNB) wants to safeguard a stable financial system. This requires sound financial institutions that operate with integrity. This is necessary to ensure a sustainable economy in the Netherlands. We warn against risks that could affect the system as a whole, and issue advice. We also improve the financial system's resilience by demanding that financial institutions reinforce their buffers.
The financial system is at the heart of the economy. It allows you to save, borrow and invest. It also ensures that you can pay safely and quickly, and that you can cover financial risks that you do not want to or are unable to bear. These things are often taken for granted, but they are essential to the functioning of the economy. That is why it is important that the financial system is robust and that it continues to function under less favourable economic circumstances.
De Nederlandsche Bank monitors the stability of the financial system. Every six months, we publish our Financial Stability Report (FSR). In this report we identify risks to the financial system. We published the most recent edition on 9 October 2023.
In our latest Financial Stability Report (FSR), we note that risks to financial stability have increased over the past six months. We describe three risks to financial stability in the transition from a low to high interest rate environment following the series of interest rate hikes by central banks. First, there is lower liquidity in financial markets, allowing price fluctuations in one market to spill over to other parts of the financial system more quickly. Second, financial institutions are facing growing interest rate and credit risks, mainly due to higher refinancing risks and lower repayment capacity among businesses. The third risk to financial stability concerns government debt, which weighs more heavily on governments’ budgets due to higher interest rates.
Financial Stability Report - Autumn 2023 (in Dutch)
A stable financial system continues to function during economic slowdowns, if banks or pension funds run into trouble, or if stock markets crash. In other words, it is a robust and resilient system that can absorb shocks and contribute to sustainable economic growth in the Netherlands. We cannot allow the financial system itself to become a source of disruption in the economy. A stable financial system also guarantees sufficient financial buffers.
Financial Stability brochure
We look at various areas to assess the stability of the financial system. To do this, we use a large number of indicators, such as an increasing amount of loans (credit growth), rapidly rising real estate prices and the amount of cash that banks are holding (liquidity). For example, strong credit growth associated with strongly rising real estate prices is often an indication of (future) instability.
We chair the Financial Stability Committee, which meets at least twice a year. At international level we participate in the International Monetary Fund (IMF), the European Central Bank (ECB), the European Systemic Risk Board (ESRB) and the Financial Stability Board (FSB). Our President Klaas Knot is the Vice-Chair of the FSB. Our participation in consultations in The Hague and Brussels is also important.
No. 1/2019: The quality and independence of residential property appraisals
No. 1/2017: The housing market in major Dutch cities
No. 4/2015: Dutch mortgages in the DNB loan level data
No. 2/2015: Effects of further reductions in the LTV limit
No. 8/2018: The price of transition: an analysis of the economic implications of carbon taxing.
No. 7/2018: An energy transition risk stress test for the financial system of the Netherlands.
No. 7/2018: Appendix - Modelling the energy transition risk stress test
No. 2/2016: Time for Transition - an exploratory study of the transition to a carbon-neutral economy
No. 6/2018: Size of the banking sector: implications for financial stability
No. 5/2015: Longevity Risk Transfer activities by European insurers and pension funds
No. 4/2017: Developing macroprudential policy for alternative investment funds
No. 5/2016: The Return on Equity of Large Dutch Banks
No. 3/2017: A top-down stress testing framework for the Dutch banking sector
No. 7/2015: Shedding a clearer light on financial stability risks in the shadow banking system
Today, speaking at the ASEAN+3 Economic Cooperation and Financial Stability Forum (online) in his capacity as FSB chair, Klaas Knot said that vulnerabilities in the global financial system remain elevated.
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Dutch institutional investors such as pension funds, investment funds and insurers kept their investments in risky bonds roughly the same over the past 12 months. This is a break from previous years: since 2019, large investors had expanded their exposure to what are termed high-yield bonds.
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Dutch banks are financially resilient, thanks in part to increased interest rates. This gives them the room to step up their ambitions in terms of digitalisation, sustainability and the fight against money laundering.
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In his introductory remarks at the Fifth Macroprudential Policy and Research Conference at the ECB in Frankfurt Klaas Knot discussed some of the challenges in using macro-prudential tools.
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