On 19 January 2016, the Dutch Minister of Finance sent the Dutch Parliament the results of an investigation into the Dutch shadow banking sector. The investigation has been carried out by the Dutch Central Bank (De Nederlandsche Bank, the DNB).
The shadow banking system can – in short – be described as lending by institutions outside of the regular banking system. The DNB indicates that the term shadow banks generally has a negative connotation, while they can in fact represent a welcome source of funding alongside regular bank credit (particularly in Europe, where economies are heavily reliant on banks). The Financial Stability Board (FSB) coordinates a worldwide project to monitor developments in shadow banking. According to the FSB, parties are considered to be a shadow bank if: (i) they are part of a chain of credit intermediaries; (ii) are not regulated as a bank or another financial institution; and (iii) conduct ‘bank-like’ activities (for example, activities which include attracting funds for a short period and lending these for a longer period or activities involving leveraging).
By using this new definition of shadow banking, the DNB concludes that the shadow banking sector in the Netherlands, which has total assets of €207 billion, is significantly smaller than previously estimated. Around 1% of the worldwide shadow banking system takes place within the Netherlands. However, the Dutch Minister of Finance argues that, given the nature of the shadow banking activities and current market conditions, it remains of great importance that potential risks in the shadow banking sector continue to be analysed and, where necessary, relevant action is taken. The DNB also indicates that a close eye should be kept on any new risks to financial stability that may build up as a result of shadow banking.
View DNB’s report titled ‘Shedding a clearer light on financial stability risks in the shadow banking system’ (in English), 18 December 2015, and the accompanying letter from the Dutch Minister of Finance (Dutch Only), 19 January 2016.