Report of the Financial Stability Committee of 9 July 2025

1 Report of the Financial Stability Committee 9 July 2025 In the Financial Stability Committee (FSC), representatives from the Authority for the Financial Markets (AFM), De Nederlandsche Bank (DNB), and the Ministry of Finance discuss developments regarding financial stability in the Netherlands. The Central Planning Bureau (CPB) participates in the meetings as an external expert. The President of DNB chairs the FSC. During the meeting on 9 July 2025, three main topics were discussed: current risks to financial stability, the economic and financial interconnections between the Netherlands and the United States, and the follow-up to recommendations from the IMF Financial Sector Assessment Program (FSAP). A representative from the Ministry of Housing and Spatial Planning participated in the discussion on the latter topic.

1. Current developments and risks to financial stability The Dutch economy shows moderate growth in 2025. In the first quarter, gross domestic product increased by 0.4% compared to the previous quarter. Consumer spending, in particular, supported growth due to the combination of relatively high wage increases and declining inflation. Despite this relatively strong growth, economic dynamics remain vulnerable.1 The international trade environment has deteriorated due to ongoing geopolitical tensions, leading to increased uncertainty and pressure on world trade growth. As a result, business investments are being delayed and exports are lagging. Inflation in the Netherlands is declining slowly but remains at a higher level than in the euro area. Underlying factors are pushing inflation in different directions, and the increased volatility of energy prices creates uncertainty in inflation forecasts. In the euro area, inflation is currently around the target of the European Central Bank, which recently lowered interest rates to 2%. Looking ahead, it is expected that Dutch inflation will also move towards 2%, but at a slower pace. The FSC notes that financial markets have remained resilient so far, despite increased volatility and uncertainty. The high price-earnings ratios of stocks are difficult to reconcile with this environment, increasing the likelihood of abrupt price corrections. It is also notable that movements in financial markets deviate from historical patterns: for example, the American dollar is weakening against the euro, while the interest rate differential with the US is increasing. The FSC emphasizes the importance of robust risk management, and in particular the use of scenario analyses to identify vulnerabilities that are not present in historical data or models. The risk of shocks hitting the financial sector remains high. In contrast, Dutch financial institutions possess strong buffers and have so far proven capable of absorbing shocks. The FSC also discusses longer-term developments, such as the weakening foundation for economic growth, aging, and debt sustainability. Due to the persistent tightness in the labor market and relatively low productivity growth, economic growth in both the Netherlands and Europe is constrained. This requires, among other things, strengthening the European internal market. FSC members see the European Savings and Investments Union as an important step to strengthen the financing of innovative companies. Simplification of financial sector regulation can also help improve competitiveness, but this must not come at the expense of resilience.2 Regarding debt sustainability, the FSC sees ongoing risks. High debt levels in some European countries increase sensitivity to changes in interest rates. The increase in European defense spending to meet new NATO standards places additional pressure on fiscal space. It is necessary that these expenditures are ultimately integrated structurally into budgets to guarantee long-term debt sustainability. Digital and operational resilience remains an important point of attention. The threat of cyberattacks has increased, and financial institutions are increasingly dependent on digital infrastructure. The importance of operational risks and business continuity in a broader sense has also grown, due in part to ongoing geopolitical tensions. The FSC has agreed to discuss this topic further at the next meeting. Finally, the FSC also pays attention to the growth and potential of crypto assets and stablecoins in the financial system. Although the interconnection between crypto and the traditional financial sector is still limited, it is increasing rapidly. Cross-border divergence in regulation and supervision is concerning. 2 Zie ook het Overzicht Financiële Stabiliteit - voorjaar 2025 | De Nederlandsche Bank

3 Interconnections with the United States The Dutch economy and financial sector are closely intertwined with that of the United States. 3 This interconnection manifests itself at multiple levels: through trade and investments, through direct and indirect financial exposures, and through financial infrastructure such as payment systems and IT services. These relations with the US are extensive and provide significant economic benefits. At the same time, they increase sensitivity to external shocks and create strategic dependencies. The FSC underscores the importance of strategically diversifying trade relations and strengthening the European internal market to enhance Europe's resilience. Within the financial sector, direct Dutch exposures to US assets are generally manageable but not negligible. For example, pension funds have significant interests in US markets, particularly due to the size of the US stock market. The central role of the dollar in the international financial system means that indirect dependencies are greater, for example because many international payments are made in US dollars. In this context, FSC members also mention the recently adopted so-called “Big Beautiful Bill” in the United States. The FSC points to the possible consequences of the increasing US national debt for the stability of the international financial system, given the role of US Treasury bonds as safe assets. Furthermore, there are dependencies in financial infrastructure and on the technological/IT side. European financial institutions use American systems for payments, securities settlement, and IT services. The latter also plays a broader role in the economy. European initiatives such as the European Payments Initiative and the DORA regulation can contribute to greater strategic autonomy and better risk management. At the same time, dependency remains high in the short term. The FSC emphasizes the importance of European alternatives for essential digital services and the development of strategic autonomy in this area to enhance resilience. Cooperation between private and public parties can accelerate this development. In addition to European strategic autonomy, FSC members also emphasize the importance of international cooperation and the key role of the US in organizations such as the International Monetary Fund, G20, and Financial Stability Board. Through international cooperation, negative shocks can be better addressed, as financial stress can spread quickly through international interconnections. Access to dollar swap lines from the Federal Reserve during periods of financial stress, for example, is an important way to limit the impact of negative shocks. 3 Zie ook Financiële verwevenheden van Nederland met de Verenigde Staten | CPB

4 3. Follow-up on IMF FSAP Recommendations The FSC discusses progress in following up on recommendations from the IMF Financial Sector Assessment Program (FSAP). The discussion focuses in particular on the IMF's recommendation to strengthen governance regarding mortgage lending norms. The IMF states that financial stability considerations should play a more important role in determining lending norms. SEO Economic Research conducted an evaluation at the request of the Ministries of Finance and Housing and Spatial Planning on the effectiveness, efficiency, and feasibility of mortgage lending norms. This report and the recommendations, as well as the proposals from the Minister of Finance, were recently shared with the House of Representatives. FSC members welcome the proposal to give the AFM and DNB a greater role in monitoring the effects of lending norms on financial stability. This strengthens the integration of financial stability considerations into decision-making. In addition, the monitoring of access to the housing market will be carried out by the CPB, which contributes to further strengthening judgment. Although FSC members note that different interests may conflict (responsible lending behavior, access to the housing market, and financial stability), the proposal is seen as an important step forward. The implementation of the other FSAP recommendations is largely proceeding according to plan. FSC members recognize the conclusions of the IMF in the recently conducted Article IV mission in which the Dutch economy is assessed. In this context, FSC members emphasize the importance of the availability of granular data regarding housing mortgages to monitor risks in the housing market well, also in the context of the aforementioned recommendation. The next meeting will take place on 12 November 2025. Members may submit suggestions for the agenda in advance.