Losses will then gradually ease as the more than 200 billion
euros of European government bonds the DNB purchased at low or
negative rates as part of ECB policy mature.
Knot said an essential difference between the DNB and
Silicon Valley Bank, which failed this month after being forced
to realise losses on government bonds, was that the DNB had
expected and prepared for interest rates to rise.
"I have to say (the bank's failure) caused some amazement on
our side," he said. "Interest rate risk is a pretty elementary
banking risk."
(Reporting by Toby Sterling; Editing by Kirsten Donovan)
(.)
By Toby Sterling and Bart H. Meijer
AMSTERDAM, March 23 (Reuters) - The Dutch central bank
(DNB) expects to post losses through 2028, wiping out its equity
reserves, President Klaas Knot said on Thursday, an effect of
the rapid rise in interest rates after it expanded its balance
sheet by buying government bonds.
Unlike normal banks, central banks can absorb losses as they
pursue monetary policy and can operate with negative equity.
However, Knot said that is "undesirable" and could ultimately
lead the DNB to seek a politically sensitive request for a
recapitalisation funded by Dutch taxpayers.
"What we're going to do about the situation, we still have
to discuss with the ministry of Finance, but in principle we
could operate for a while with negative equity," Knot told
reporters. "We don't have depositors that could start a run on
us."
Knot is also a member of the European Central Bank's
governing council and in a separate interview with Reuters
published on Thursday he said it is not certain how long current
market jitters will last and he expects the ECB will continue
increasing interest rates to tame inflation.
At the end of 2022 the DNB had 11.3 billion euros in equity
and provisions, but it forecasts those will be wiped out in the
coming years, with combined losses of more than 6 billion euros
in 2023 and 2024.
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