DNB today released an overview of financial stability. He discussed the recent turmoil in the banking sector. There are all kinds of signs of growing vulnerability and fragility in the banking system, including in Europe, Benink says. ‘We have seen that three banks in America have failed. We have also seen Credit Suisse in Switzerland run into difficulties that need to be taken over by UBS. Also, Deutsche Bank in particular was under pressure in the eurozone. Furthermore, by the end of March, the share prices of all the major eurozone banks, including the Netherlands, had fallen by fifteen to twenty per cent.
‘In a world with high debt-to-GDP ratios and rapidly rising interest rates, vulnerabilities and uncertainties are very present. So I don’t quite understand why it takes Dutch banks a year to implement it».
Does the regulation come too late?
Benink finds it surprising that the regulations won’t go into effect until May next year. ‘You could say that the risks in the global financial system have increased enormously right now. The International Monetary Fund (IMF) also says so. In a world with high debt-to-GDP ratios and rapidly rising interest rates, vulnerabilities and uncertainties are very present. Therefore I don’t fully understand that it takes Dutch banks a year to implement this. At the moment, the capital buffers of Dutch banks are above the current minimum standards. In principle, therefore, it should be possible for Dutch banks to increase their reserves in one fell swoop.’
However, Benink also says that the buffer boost is actually quite small. There are two things that need to be taken into consideration. ‘First of all, the DNB will increase the so-called countercyclical capital buffers. In other words, in times of good economic activity where the economy is still growing, banks need to hold more reserves to prepare for worse times. All Dutch banks should therefore hold 3.4 billion euros more capital than they currently have.’
Reduced buffer requirements
According to Benink there is something in return, because at the same time they will also lower the buffer requirements relating to system banks. ‘If a big bank gets into trouble, it has a major impact on financial stability in the Netherlands, but also in Europe. And now they will lower those buffer requirements, based on the new European standards, in May next year.
“Capital reserves will on the one hand increase by 3.4 billion euros, but they will also decrease by 2.8 billion euros. This applies to all Dutch banks. Therefore, net they rise by 600 million euros. That’s certainly doable for banks, “because they’re way above the minimum required capital buffers,” says Benink.