Supervision of banks in the Netherlands

The Netherlands Court of Audit has audited how De Nederlandsche Bank (DNB, the Dutch central bank) supervises banks in the Netherlands. DNB is responsible for the prudential supervision (the supervision of risks incurred) of medium-sized and small banks located in the Netherlands. The European Central Bank (ECB) has been responsible for the supervision of large banks since 2014, when the EU Single Supervisory Mechanism came into operation. We audited, among other things, how DNB exercised its supervisory responsibilities, the role played by the Minister of Finance in supervising DNB and the consequences of the introduction of the Single Supervisory Mechanism for Supreme Audit Institutions. 

How does DNB supervise medium-sized and small banks in the Netherlands? What role does the Minister of Finance play? And what are the consequences of the introduction of the Single Supervisory Mechanism in 2014 for Supreme Audit Institutions?

We came to the conclusion that DNB has organised its supervision of medium-sized and small banks well. The supervision itself is intensive and strict. There are shortcomings, however, in the Minister of Finance’s supervision of DNB. The introduction of the Single Supervisory Mechanism has made it more difficult for Supreme Audit Institutions to independently audit banking supervision.

Why did we audit DNB’s supervision of medium-sized and small banks in the Netherlands?

Following the banking crisis, the EU decided in 2012 to introduce a banking union. The Single Supervisory Mechanism was introduced two years later. The European Central Bank (ECB) was tasked with supervising the large international banks, and national prudential supervisors retained their powers to supervise medium-sized and small banks. These changes prompted some Supreme Audit Institutions to ask how audit of the supervision had been organised. Five Supreme Audit Institutions – those of Austria, Cyprus, Germany, Finland and the Netherlands – decided in 2015 to carry out a joint audit of the supervision of medium-sized and small banks in their home countries.

What are our recommendations concerning DNB’s supervision of medium-sized and small banks in the Netherlands?

We recommend that DNB clearly explains to the banks how the capital and liquidity requirements and the supervisory standards were arrived at. We asked DNB for a guarantee that the Netherlands Court of Audit would retain access to information on the supervision of medium-sized and small banks.

We recommend that the Minister of Finance strengthens and documents the flow of information between the ministry and DNB and supervises DNB’s bank supervision more frequently and effectively. We also recommend that the minister find a structural solution at EU level to the difficulties Supreme Audit Institutions are experiencing in their performance of independent audits of banking supervision.

What standards and methods did we use to audit DNB’s supervision of medium-sized and small banks in the Netherlands?

We prepared a standards framework for our audit of DNB based on European and Dutch regulations. The framework considered the way in which supervision had been organised and how it worked in practice. To audit the Minister of Finance’s supervision of DNB we supplemented the standards framework with relevant Dutch laws and rules.

What data did we use to audit DNB’s supervision of medium-sized and small banks in the Netherlands?

For our audit of DNB and the Ministry of Finance, we requested information from the two institutions and held interviews. We also analysed financial data from medium-sized and small banks supervised by DNB.

Our opinion was based on the information to which we had direct access and on the interviews we held. Much of the information DNB uses to supervise banks is derived from reports issued by the banks themselves. We were not able to establish the quality of that information independently. The ECB provided us with no insight into the guidelines it uses to supervise banks and we were accordingly unable to establish whether DNB exercised its tasks in accordance with the ECB’s requirements.

Current status

We received the President of DNB’s response to our audit report on 5 September 2017. He recognised the importance of the Court of Audit’s report and he largely accepted our recommendations. We received the Minister of Finance’s response on 11 September. The minister said he had read the report with interest and appreciation and he, too, would follow up the recommendations.

The Court of Audit published its audit report on 27 September 2017.