Banks must have bigger buffers: DNB

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The four biggest banks in the Netherlands have to introduce bigger financial buffers in the coming years in order to avoid collapse. The Dutch Bank (DNB) has told ABN Amro, ING Bank and Rabobank to build up a buffer of 3 percent and the SNS Bank to build up a buffer of 1 percent.

These extra buffers will come on top of the stricter and heavier European capital requirement of 7 percent. The three biggest banks must therefore hold a core capital of at least 10 percent, and SNS around 8 percent.

These percentages are based on so-called risk-weighted assets. This is everything that the bank has as it relates to risks to loans, mortgages, credit and deposits. The more there is of this, the more banks have to keep for security.

The extra buffer of the four banks collectively costs around €18 billion with the current assets. They will get a few years to build up the buffer.

Banks have been able to build up for the extra buffers in the last few years already. All four are now already at a core capital of 10 percent or more. The DNB's demand will therefore not cost the banks extra money as well.

The banks will also have to fulfill the European buffer demands in the coming years as well. A further €4.5 billion will have to be put aside for the European safety nets for banks, money for a new deposit guarantee fund for savings, and the yearly €600 million bank tax.

These four banks are central in the financial system, according to the DNB, as they are so-called system banks. If any one of the four banks threatens to collapse, then that will bring big risks and costs with it for the financial system and the economy, the DNB states. If the buffers are bigger then the risk of failure is smaller.

The banks are strongly interconnected with each other as well as different financial institutions. They take care of most of the credit loans to households and businesses in the country. SNS Bank is smaller, and less relevant to the system, but is a big player in the market of savings and mortgages.

In 2011, DNB hinted that the buffers would have to be heightened and has published the exact percentages that each bank will have to comply with on Tuesday.

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