To be well prepared for the bad times, banks have to increase their precautionary reserves again. De Nederlandsche Bank (DNB) announced this on Wednesday in its financial stability public offer (OFS†
At the beginning of the Corona pandemic, the policy of holding buffers was relaxed, so that the economy could continue to operate as much as possible. Now is the 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,” the DNB said in the post.
DNB President Klas Knott stresses that the world currently looks very different than it did at the beginning of this year. “The war on the European continent was more than 20 years ago and we have not seen inflation as high as it has now in four decades.”
In addition, consumer confidence is historically low as well. “You can’t help but notice that we live in strange times and the economic uncertainty is great.” So, now is the time for the banks to prepare for worse times.
This is done by activating the so-called countercyclical capital buffer (CCyB), which is increased to 1 percent. If the short-term economic outlook does not deteriorate, then this barrier will come into effect in exactly one year – on May 25, 2023.
In the long run, CCyB should go to 2 percent.