Amidst widespread central bank losses, the significance of central bank capital has surged, said Olaf Sleijpen, executive Board Member of Monetary Affairs and Financial Stability of the Netherlands Bank (DNB).
DNB, the Dutch central bank, is experiencing a large loss due to the Eurosystem’s monetary policy, estimated at 9 billion euros ($9.6bn) during the period 2023 until 2028 (a bit short of 1% of GDP).
In the recent revision of the capital policy, both DNB and the Ministry of Finance – representing the Bank’s sole shareholder – reaffirmed the pivotal role of central bank capital. They emphasized the urgent need to reestablish robust buffers, especially during periods of profitability for central banks.
DNB and its shareholder have reached a consensus on a strategy to gradually rebuild buffers through the retention of future profits, rather than opting for recapitalization. This decision underscores the mutual commitment to preserving central bank independence. Furthermore, it signifies the robustness of DNB’s capital position, reassuring stakeholders that the central bank policies remain effective despite the erosion of capital over the coming years.
“In essence, DNB regards capital as paramount, because it ensures the central bank’s ability to fulfill its mandate even amidst challenging economic conditions. This commitment to maintaining a strong capital base underscores our dedication to safeguarding price stability and preserving its capacity to navigate through uncertain economic landscapes,” he said.