DNB balance sheet size increases due to COVID-19 pandemic response
At the end of the first quarter of 2021, the balance sheet of De Nederlandsche Bank (DNB) amounted to no less than EUR 464 billion. This is an increase of EUR 149 billion (47%) compared to February 2020, just before the global outbreak of COVID-19, when DNB's balance sheet totalled EUR 314 billion. The increase in the past year mainly resulted from purchases of government and corporate debt securities under the ECB's Pandemic Emergency Purchase Programme (PEPP), and from banks making more use of refinancing operations (collateralised lending to banks).
Increase in securities holdings due to pandemic emergency purchase program
The total value of DNB securities holdings (excluding equities) issued by euro area residents increased from EUR 114 billion before the start of the COVID-19 pandemic to EUR 166 billion at the end of March 2021, an increase of EUR 52 billion (46%). Of the EUR 166 billion held in securities, EUR 127 billion (77%) were issued by governments.
The increase in securities held by DNB is due to the ECB's asset purchase programmes, which were expanded during the coronavirus crisis. By purchasing debt securities, the ECB reduces interest rate and term premiums. By doing so the ECB aims to create favourable financing conditions for businesses and households in order to stimulate the economy and ultimately inflation.
Frequent use of extended refinancing operations
Another important reason for the substantial increase in the size of DNB's balance sheet is the frequent use of Targeted Longer-Term Refinancing Operations (TLTROs). These are loans to banks (collateralised refinancing operations) whereby the interest rate for banks depends on the development of their lending to the real economy. Conditions for these TLTROs were relaxed during the coronavirus crisis to support bank lending. Partly due to these TLTROs, at the end of March 2021 loans and deposits (excluding the TARGET-2 balance) outstanding to monetary and financial institutions located in the euro area amounted to EUR 164 billion. This is an increase of EUR 135 billion compared to February 2020, when the amount outstanding totalled EUR 30 billion. In the same period, the TARGET-2 balance decreased from EUR 51 billion to EUR 8 billion.
Strong increase in deposits held by Dutch banking sector at DNB
The above increase in assets due to the Eurosystem's asset purchase programmes and refinancing operations is reflected on the liabilities side by Dutch banking sector deposits held with DNB. This item increased from EUR 153 billion in February 2020 to EUR 301 billion at the end of the first quarter in 2021, a rise of 97%.