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Capital Requirements for Banks in the Netherlands

The Dutch banking sector is subject to strict regulations regarding capital requirements. These regulations are designed to ensure that banks have sufficient funds to absorb potential losses and maintain stability in the financial system.

Key Points

Minimum Own Funds

Banks must maintain a minimum of own funds, expressed as a percentage of risk-weighted assets. This requirement is essential for ensuring that banks can cover potential losses without relying on external funding.

Risk-Weighted Assets

Safer assets are attributed a lower allocation of capital, while riskier assets are given a higher risk weight. This approach allows regulators to assess the overall risk profile of a bank’s balance sheet and require more capital to be held against riskier assets.

Tier 1 and Tier 2 Capital

  • Tier 1 capital is considered going concern capital, which means it represents the bank’s core equity and retained earnings.
  • Tier 2 capital is considered gone concern capital, which includes subordinated debt and other forms of debt that are not included in Tier 1 capital.

Capital Buffers

Banks may extend their capital buffers with additional funds, such as:

  • Capital conservation buffer: a buffer to absorb losses during times of stress
  • Countercyclical buffer: a buffer to mitigate systemic risk by requiring banks to hold more capital when the financial system is booming
  • Buffer for systemic importance: a buffer to account for the bank’s contribution to systemic risk

Leverage Ratio

A leverage ratio of at least 3% must be maintained, calculated by Tier 1 capital divided by consolidated assets. This requirement helps to ensure that banks do not take on excessive levels of debt.

Liquidity Requirements

Banks must maintain sufficient liquid assets to fund cash outflows for:

  • 30 days: the liquidity coverage ratio (LCR) requires banks to hold high-quality liquid assets that can be converted into cash within 30 days
  • One year: the net stable funding ratio (NSFR) requires banks to maintain a stable funding profile over a one-year time horizon

Additional Points

  • The NSFR is calculated as available stable funding over required stable funding, taking into account the accounting value of assets, liabilities, off-balance-sheet items, and regulatory capital.
  • The leverage ratio for global systemically important banks (significant banks) is higher than 3%.
  • CRD V introduces a binding leverage ratio of 3% and an additional leverage ratio for significant banks.