To be well prepared for worse times, the banks have to increase their buffers again. De Nederlandsche Bank (DNB) announced this on Wednesday in its Overview of Financial Stability (OFS).
At the start of the corona pandemic, policy for holding buffers had been relaxed, so that the economy could continue to run as much as possible. Now it is time to tighten the reins, especially given the current economic uncertainties.
“After a strong recovery from the corona pandemic last year, the war in Ukraine and high inflation have worsened the economic outlook and increased risks to financial stability,” DNB said in the publication.
DNB president Klaas Knot emphasizes that the world currently looks very different than at the beginning of this year. “A war on the European continent was more than 20 years ago and we have not seen inflation as high as it is now in four decades.”
In addition, consumer confidence is also historically low. “You can’t help but notice that we live in strange times and the economic uncertainty is great.” Therefore, now is the time for banks to prepare for potentially worse times.
This is done by activating the so-called countercyclical capital buffer (CCyB), which is increased to 1 percent. If the economic outlook does not deteriorate in the short term, that buffer will come into effect in exactly one year – on 25 May 2023.
In the long term, the CCyB should go to 2 percent.
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