Change in concentration risk supervision for exposures to high-risk jurisdictions and deposit funding

With the introduction of European supervision on banks, alternative instruments were made available to monitor the risk of banks overexposing in high-risk jurisdictions using deposits covered under the Dutch deposit guarantee scheme (DGS) for funding. In 2014, DNB introduced the Policy Rule Maximising Deposits and Exposures Ratio under the Wft (Beleidsregel maximering ratio deposito’s en uitzettingen Wft) to mitigate this risk. Due to developments in national- and European laws and regulations and European banking supervision since then, we have decided to monitor and, where necessary, address institution-specific relevant risks. For this reason we will revoke the policy rule from 1 January 2023.

We wish to stress that banks remain responsible for control and mitigation of the risk of excessive exposures to high-risk jurisdictions funded by deposits covered by the Dutch DGS. As this risk remains as great as ever, we will ensure bank’s responsibility by using alternative supervisory measures.

Institution specific approach

As part of the Supervisory Review and Evaluation Process (SREP) we will assess per institution whether banks have structured their risk management adequately to address the underlying risk. The outcome will be used in determining the level of capital and liquidity requirements. We may impose specific measures if necessary. For monitoring the underlying risk we will use the institution-specific risk assessments based on risk indicators, such as – but not limited to – the size of DGS-covered deposits to the balance sheet total and the size of exposure to jurisdictions with poor credit ratings of External Credit Assessment Institutions (ECAIs)

Anchoring in SREP process

In line with the EBA Guidelines on SREP and supervisory stress testing (EBA/GL/2022/03), we will impose stricter requirements where necessary during this annual review or at an interim review if the increase in risk warrants it. To this end, Section 3:111a(1)(c) and (2) of the Financial Supervision Act (Wet op het financieel toezicht – Wft), which implements Articles 104 and 104a of the Capital Requirements Directive, mandates us to take various specific measures. For example, we may require that a bank restricts activities that carry excessive risk to its soundness or that it treats liquidity items or assets in a specific way. We may also impose several measures simultaneously.