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Business and Economics > Banks and Banking

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Cover IMF Working Papers
Beyond the Dikes: Flood Scenarios for Financial Stability Risk Analysis
Caterina Lepore
and
Junghwan Mok
We assess financial stability risks from floods in the Netherlands using a comprehensive set of flood scenarios considering different factors including geographical regions, flood types, climate conditions, return periods, and adaptation. The estimated damage from each flood scenario is used to calibrate the corresponding macro-financial scenario for bank stress tests. Our results show the importance of considering these heterogeneous factors when conducting physical climate risk stress tests, as the impact of floods on bank capital varies significantly by scenario. We find that climate change amplifies the adverse impact on banks’ capital, but stronger flood defenses in the Netherlands can help mitigate some impacts. Further, we find a non-linear relationship between flood damages and banks’ capital depletion, highlighting the importance of considering extreme scenarios.
Keywords:
Physical risk; flood scenario; banking stress test; climate risk analysis; climate risk stress tests; bank capital; Natural disasters; Climate change; Commercial banks; Housing prices; Stress testing; Global
Cover IMF Staff Country Reports
Kingdom of the Netherlands-The Netherlands: Financial Sector Assessment Program- Technical Note on Climate Risk Analysis
International Monetary Fund. Monetary and Capital Markets Department
This paper presents a technical note on climate risk analysis in The Netherlands. The Netherlands is exposed to both physical and transition risks from climate change. This Financial Sector Assessment Program FSAP analyzed potential risks to financial stability posed by physical risks from floods and transition risks from nitrogen. In order to assess physical climate risks, bank stress tests were conducted against flood events under a range of scenarios encompassing diverse regions, climate conditions, and flood protection reinforcement plans with different return periods. Despite the sizeable land area in the Netherlands susceptible to flooding, the physical climate stress test has demonstrated that the banking sector exhibits resilience to flood events. As the government’s efforts to reduce nitrogen depositions continue, the banking sector could face transition risks through the credit channel, particularly if loans are extended to financially vulnerable firms in high nitrogen-emitting sectors. The Dutch government should strengthen data sharing and collaboration with floods and climate experts. Flood scenarios designed with detailed flood maps under future climate conditions would provide a more accurate assessment of both climate change impact and adaptation measures.
Keywords:
risk analysis; statistics Netherlands; flood scenario design scheme; types classification; B. flood scenario; nitrogen emission intensity; Natural disasters; Climate change; Insurance companies; Commercial banks; Global
Cover Policy Papers
Poverty Reduction and Growth Trust: 2024 Borrowing Agreements with Belgium, Denmark, France, Japan, Korea, And Qatar
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Legal Dept.
This paper presents the last six borrowing agreements that were concluded between October 2023 and February 2024 to provide new loan resources to the Poverty Reduction and Growth Trust (PRGT) as part of the loan mobilization round launched in July 2021 to support low-income countries (LICs) during the pandemic and beyond. Five of the six agreements use SDRs in the context of SDR channeling. Together these borrowing agreements provide a total amount of SDR 3.9 billion in new PRGT loan resources. The 2021 loan fundraising campaign was concluded successfully. It mobilized total contributions of SDR 14.65 billion from 17 PRGT lenders, well exceeding the SDR 12.6 billion loan target.
Keywords:
transparency policy; PRGT loan disbursement; loan resource; SDR interest rate assumption; loan pledge; Loans; Poverty reduction and development; SDR interest rate
Cover Policy Papers
Resilience and Sustainability Trust―2024 Contribution Agreements with Belgium, Malta, Qatar, and Switzerland
International Monetary Fund. Finance Dept.
and
International Monetary Fund. Legal Dept.
This paper presents Resilience and Sustainability (RST) contribution agreements finalized with four contributors between October 2023 and March 15, 2024. The concluded agreements provide for contributions in a total amount of about SDR 1.2 billion across the three RST accounts – the loan account, deposit account, and reserve account. The new agreements with four members add critical resources that support the continued smooth operations of the RST.
Keywords:
Resilience and Sustainability Trust (RST); Contribution agreements; Resource adequacy; Funding; Contributions; transparency policy; deposit account claim; DA agreement; DA portion; DA contribution; DA assets; Loans; SDR interest rate
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Financial Safety Net and Crisis Management
International Monetary Fund. Monetary and Capital Markets Department
This report on Belgium discusses the technical note on financial safety net and crisis management. The authorities should now focus on strengthening the crisis management framework, ensure the operational readiness of resolution plans and enhancing the Deposit Insurance System. The Belgium financial sector assessment program has reviewed the national arrangements and, as a result, all the recommendations are addressed to the national authorities. This technical note also refers to Significant Institutions when relevant and includes a factual description of the allocation of responsibilities between the Belgian authorities, the European Central Bank and the Single Resolution Board with regards to the functioning of the financial safety net. The resolution and crisis management framework should further promote internal coordination and cooperation. Efforts in the resolution front should be devoted to achieving operational readiness. The framework for granting Emergency Liquidity Assistance should be reinforced further. Recent international experiences also highlighted the critical importance of having sufficient liquidity leading up to and during resolution.
Keywords:
Resolution unit; NBB governor; NBB organic law; Belgium FSAP; resolution planning; Bank resolution framework; Lender of last resort; Financial safety nets; Bank resolution; Crisis resolution; Global
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Detailed Assessment of Observance-Assessment of the CPSS–IOSCO Principles for Financial Market Infrastructures Euroclear Bank
International Monetary Fund. Monetary and Capital Markets Department
This paper on Belgium focuses on detailed assessment of observance of the International Organization of Securities Commissions (CPSS-IOSCO) principles for financial market infrastructures. While improvements have been made since the onboarding of the current Chief Information Security Officer, in particular to Euroclear’s cyber posture, there remain critical deficiencies in the management of key operational risk elements, which will require substantial efforts to address. Beyond relying on direct participant disclosure, Euroclear Bank (EB) should develop capacity for increasing the transparency with respect to the business of its direct participants’ clients. EB should also improve the breadth and rigor of its business continuity and default management testing by conducting simulation exercises based on well-defined scenarios. The report suggests that the National Bank of Belgium (NBB)—as the National Resolution Authority—should ensure that the resolution plan for EB is fully operationalized. Action to seize frozen assets at Euroclear because of international sanctions imposed following the Russian invasion of Ukraine could have unintended consequences for EB and the Euroclear Group more broadly.
Keywords:
resolution plan; EB's service; cyber posture; EB's ability; assessment of EB; EB's book; access implication; Securities; Credit risk; Operational risk; Collateral; Central securities depositories; Global; Europe
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Technical Note on Regulation and Supervision of Less Significant Institutions
International Monetary Fund. Monetary and Capital Markets Department
This paper focuses on the technical note on regulation and supervision of less significant institutions in Belgium. The financial sector assessment program (FSAP) undertook a targeted review of Belgium’s Less Significant Institutions (LSI) and third-country branches (TCBs) banking regulation and supervision. The National Bank of Belgium (NBB) and Financial Services and Markets Authority have well-established processes for prudential, product and conduct supervision of LSIs. While NBB’s overall supervisory approach is adequate, the regulatory framework for corporate governance could be enhanced. Internal decision-making processes and the underpinning of certain decision proposal could in some specific instances be enhanced. With regard to NBB’s internal supervisory processes, some fine-tuning and continued attention could be useful. The NBB should continue to ensure adequate staffing for LSI and TCB supervision and continue to carefully consider how to address any supervisory Information Technology risk concerns. Banks’ internal capital target could usefully be added to the NBB’s internal monitoring. A structured approach for conduct risk and consumer protection information sharing with the FSMA and the Ministry of Economic Affairs should be put in place.
Keywords:
Belgium LSI sector; credit institution; market development; LSI sector; NBB governance Manual; Belgium's Less Significant Institutions; Financial Sector Assessment Program; External balance assessment (EBA); Bank supervision; Bank legislation; Global
Cover IMF Staff Country Reports
Belgium: Financial Sector Assessment Program-Financial System Stability Assessment
International Monetary Fund. Monetary and Capital Markets Department
This paper focuses on the report on Belgium’s Financial Sector Assessment Program. Economic activity has slowed, core inflation remains high, and the fiscal outlook is challenging. The financial sector has remained resilient despite a series of shocks. Key financial stability risks emanate from the large, concentrated, and interconnected banking sector, private sector indebtedness, and high exposure to real estate. Bank solvency stress tests indicate that the financial sector is resilient under severe macroeconomic shocks. Although there is some heterogeneity across financial institutions, all banks would satisfy the minimum capital criteria. The authorities should enhance the National Bank of Belgium’s powers to set macroprudential policy in line with its financial stability mandate. In the near term, the extension/ setting of capital requirements should be streamlined, without the requirement for government approval. There is scope to strengthen the corporate governance framework and expectations for banks, and boost prudential supervisory staffing, especially given upcoming regulatory developments.
Keywords:
bank solvency stress tests; insurance solvency stress test; NBB coordination; corporate governance framework; cash flow; B. bank Oversight; market share; Stress testing; Financial sector stability; Insurance companies; Financial Sector Assessment Program; Global; Europe
Cover IMF Staff Country Reports
Euro Area Policies: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper highlights quantitative tightening (QT) by the European Central Bank (ECB). It uses evidence from the literature on the impact of central bank bond purchases and sales on bond yields, and the monetary policy stance, to outline a roadmap for reducing the Euro system’s bond holdings. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The current tightening cycle provides an opportunity to revisit the ECB’s balance sheet policy. With inflation running above target, the monetary accommodation provided by the ECB’s bond holding is no longer necessary. The paper concludes that the ECB’s short term policy rates should be the main choice for adapting the monetary policy stance to changing circumstances and QT should proceed in a gradual, predictable manner as outlined by the ECB.
Keywords:
ECB Policy rate; ECB balance sheet; app portfolio; C. Policy consideration; bond supply net of ECB; Financial statements; Unconventional monetary policies; Central bank policy rate; Monetary stance; Securities
Cover IMF Working Papers
Effective Fiscal-Monetary Interactions in Severe Recessions
Mr. Jiaqian Chen
,
Mr. Raphael A Espinoza
,
Carlos Goncalves
,
Tryggvi Gudmundsson
,
Martina Hengge
,
Zoltan Jakab
, and
Jesper Lindé
The COVID-19 pandemic and the subsequent need for policy support have called the traditional separation between fiscal and monetary policies into question. Based on simulations of an open economy DSGE model calibrated to emerging and advance economies and case study evidence, the analysis shows when constraints are binding a more integrated approach of looking at policies can lead to a better policy mix and ultimately better macroeconomic outcomes under certain circumstances. Nonetheless, such an approach entails risks, necessitating a clear assessment of each country’s circumstances as well as safeguards to protect the credibility of the existing institutional framework.
Keywords:
monetary policy rate; government spending hike; recession scenario; rate in Botswana; hike in liquidity trap; open economy; Inflation; Inflation targeting; Fiscal stimulus; Africa; Global