Dutch financial stability rated ‘code orange’ by Central Bank president

The Netherlands faces continued risks to its financial stability as global economic and geopolitical uncertainty intensifies, De Nederlandsche Bank (DNB) said Monday in its latest Financial Stability Report.

The report highlights that economic uncertainty remains elevated, particularly due to fragmentation in international trade. Confidence among consumers and businesses is under pressure amid re-escalating disputes over tariffs and trade restrictions. “Recent trade tensions between the U.S. and China and the U.S. and Canada emphasize this,” the report states.

“The chance of economic and financial shocks is still high. It is no longer a question of if, but when and where these shocks will occur,” DNB President Olaf Sleijpen said. “Global uncertainty has reached levels not seen in decades, spanning multiple domains.”

Sleijpen offered an analogy: “If I worked at the KNMI, it would still be an orange alert,” referring to the ongoing high-risk outlook for the financial system.

Equity markets, especially in the United States, have surged to historic highs recently. Since April, European stock exchanges have risen roughly 5 percent and U.S. exchanges 20 percent, reaching record levels. Sleijpen noted that these high valuations, partially driven by optimism around artificial intelligence (AI), increase the risk of abrupt market corrections. “Concerns about stock values have grown in recent months. For the U.S., these unprecedented highs create greater fear of a downturn. Several Dutch investment firms are sensitive to this,” the report states.

Risks extend to the independence of central banks. DNB cited attacks by U.S. President Donald Trump on the Federal Reserve’s monetary policy as a potential source of instability. “When the independence of central banks is at stake, it can lead to higher inflation and more price volatility in financial markets. Concerns about this can directly affect the Dutch financial system via the U.S. government bond market,” the report says.

Despite these risks, the Dutch financial sector reportedly remains well-positioned. Banks maintain strong capital buffers and liquidity, while insurers and pension funds show robust fundamentals. However, vulnerabilities persist due to interconnections between banks and non-bank financial intermediaries, as well as the growth of private credit, where underlying exposures are not always clear.

The report also addresses the rapid expansion of stablecoins, which now exceed 300 billion dollars globally, mostly in the United States. These digital assets, pegged to currencies like the U.S. dollar and backed by government bonds and bank deposits, are primarily used for crypto-asset transactions. DNB warns that large-scale redemptions could trigger forced asset sales and abrupt market fluctuations.