DNB tells banks to test ‘extreme but plausible’ political scenarios

The Netherlands Bank (DNB) wants the country’s lenders to better understand how materialising geopolitical risks could impact financial stability.

In its 2025–28 supervision strategy, announced today (November 11), it calls on banks to integrate geopolitics into their risk management scenarios and stress tests.

“Such stress tests should be based on extreme but plausible scenarios, such as a further escalation of tensions between China and Taiwan,” the central bank says.

The DNB says this should provide insight into whether institutions have sufficient buffers in the event that geopolitical developments pose financial risks. 

It adds that “targeted scenario analyses” might prove helpful. An example of such a scenario would be how a bank’s business models might be affected if its operations in a particular jurisdiction had to be halted owing to sanctions. This would enable banks to “map operational vulnerabilities and potential risks”.

The DNB in its supervisory function will “continue to challenge institutions on how they integrate geopolitical risks into their risk management”. Cyber resilience and sanctions compliance will require “special attention”.

Lenders are exposed to cyber risks through “critical suppliers”. Should these risks materialise, they could cause ripple effects for the whole financial system through “loss of confidence and contagion effects”.

In a statement, DNB board member Steven Maijoor said: “For some years now, the Netherlands and Europe have not been able to take favourable international relations for granted.”

The bank says lenders will need to have the “necessary resilience to safely and promptly resume services following a cyber incident”. It says IT service providers will also have to comply with the new requirements set forward in the European Digital Operational Resilience Act. The DNB will enforce banks’ compliance with the regulation, while service providers will be overseen by the Dutch Authority for Financial Markets.

From a broader perspective, close collaboration between the public and private sectors will be necessary to “enhance the resilience of society”, the bank says. It adds that the state will need to increase the resilience of critical infrastructure, such as telecommunications, the electricity supply and payment systems.

The DNB calls for closer and more extensive collaboration within Europe to “effectively address geopolitical risks”.

“It is important to harmonise sanctions policy at the European level as much as possible,” it says. This, it says, will contribute to a more level playing field among institutions and ensure sanctions compliance for banks that span the continent.

It adds that increased geopolitical tensions are also leading to more sanctions, which will expose institutions to “heightened legal and reputational risks”.

The DNB says banks will have to comply with these sanctions because of the institutions’ “key role in payment systems” – hinting at the potential loss of access to dollar-denominated funding markets should lenders not comply with US-imposed measures.

“As a typical trading nation, the Netherlands is particularly sensitive to growing geopolitical tensions”, the central bank says.