This is Leaders in Finance, a podcast where we look for the person behind the success. We talk with leaders of today and tomorrow about their motivations, career, and private life. Why? Because more needs to be said in the financial sector. We want to thank the partners of this podcast for their support: Interim Valley, Auders Bansen Executive Search, and Roland Berger.
Our guest in this special 100th episode calls himself the Heintje Davids of the Dutch Central Bank. He once left, came back, left again, came back again, but the last time as president of the Dutch Central Bank.
I also had the invitation three times for the introduction program for new employees. So I knew the Dutch Central Bank, it wasn't very surprising. I actually still knew most of the colleagues and so on. So in that sense, the bank had few secrets for me.
The mission of the Dutch Central Bank is to contribute to sustainable prosperity in the Netherlands. And that is why our guest says it is important to look closely at the housing market and whether the financial stability of our country is not disrupted by it.
A lot of fake wealth is created based on the housing market, which is paper wealth, but which then turns out not to be sustainable when the housing market turns.
Our guest comes from a Groningen nest of hard workers, Calvinists who were busy every day. And as he says himself, he doesn't go home until he feels he has done everything he could that day.
I'm not going to feel responsible for things I could do very little about, but I have to go home with the idea that I have at least done the maximum for today.
In this 100th episode, room for someone who knows everything about the value of money and how to preserve that value. Our guest in this episode is Klaas Knot. Your host as always is Jeroen Broekema.
Welcome to a new episode of Leaders in Finance. A special episode, because it is the 100th episode. On February 13, 2019, we launched with the first two interviews. Those were Martijn Roosemuller from Van Ek and Ali Nicknam from Bunk. After that, a new episode followed every week with CEOs, directors, commissioners, supervisors, and professors. For the 100th episode, sitting at my table is the president of the Dutch Central Bank. As all listeners will know, that is of course Klaas Knot. Welcome.
Thank you. Nice that you take the time.
I told you, we agreed in our previous conversation that I could use the familiar 'tutor'. Thanks for that. And I will introduce you briefly. Tradition at Leaders in Finance is that I do that by spelling the name. That is Klaas, K-L-A-S, and Knot, K-N-O-T. As mentioned, Klaas Knot is the president of the Dutch Central Bank. He has held this position since 2011. In addition, he has been chairman of the Financial Stability Board (FSB) since December 2021. Furthermore, he is a member of the Governing Council of the European Central Bank (ECB), a member of the European Systemic Risk Board, governor of the International Monetary Fund, and a member of the Board of Directors of the Bank for International Settlements. Klaas Knot started his professional career at DNB, worked at the IMF, and was, among other things, Deputy Treasurer-General and Director of Financial Markets at the Ministry of Finance. Klaas Knot holds several secondary positions, including honorary professor of Economics of Central Banking at the University of Groningen and honorary professor of monetary stability at the University of Amsterdam. Klaas Knot graduated cum laude in economics at the University of Groningen, where he also obtained his PhD. Finally, Klaas Knot is 54 years old, married, has two children, and lives in Amsterdam. Well, that gives us an image that most people probably already had, but a bit more of a summary. And normally I start with my stakeholder questions and I would also like to ask them to you, but just the moment we are in. We are in a war. Well, fortunately not us, but very close to us. And when I came here this afternoon, I saw the Dutch Central Bank flag hanging there, but also the Ukrainian flag. How did that flag come to be hanging there?
Yes. Well look, you know, when people see me and my colleagues operating, they see us in a role, right? A technocratic role as central bankers, as supervisors, and so on. But we are of course also just people of flesh and blood. So this conflict, it affects us deeply too. We have special ties with Ukraine, for example, because they are in our constituency at the IMF. So that means we also take them under our wings when it comes to providing technical assistance. So a lot of employees from the Dutch Central Bank have been to Ukraine in recent years to strengthen the central bank there and so on. So I myself have also been to Kiev a few times. So yes, this affects us too. And well, we wanted to do it this way. When we saw a trend emerging in Western Europe to make the Ukrainian flag visible, we thought: 'Yes, why not at the Dutch Central Bank? We work so much with Ukraine.' Yes. And this affects us too, of course.
And hasn't it caused anything with, for example, employees of Russian origin or other people who have an opinion about it, because it is of course also a political statement in a sense?
Yes. No, I haven't really heard anything about that yet. No, I think everyone understands that at this moment it is mainly the Ukrainians who are affected by this violence. Of course, Russians might have mixed feelings about it, but it is unmistakable that their leader is the aggressor here. And not the other way around.
Clear. Well, then let's get to the order of the day. And that is what I started with in most of the 100 interviews: the stakeholders around the organization that that person represents. I would also like to do that with you. If you look at the stakeholders of the Dutch Central Bank, which stakeholder would you yourself like to start with to explain?
Well, look, our most important stakeholder is the Dutch citizen. So for the Dutch citizen, that is ultimately what we do it for. We try to deliver price stability there, so that the purchasing power of their money is not eroded. We try to deliver financial stability, so that their money is safe at the bank, that their life insurance pays out, that their pension pays out when they expect it, that payments continue to work, and that there are of course many developments for that, but ultimately we must never forget that we do that for the Dutch citizen, and partly, I must say, increasingly for the European citizen. The activities I perform in Frankfurt, we also do that for the Dutch and the European citizen.
And the next stakeholder could be the employees, the colleagues. How many people are you actually at DNB approximately?
Well, we are with almost 2,000 FTEs. That is of course slightly more employees because not everyone works full-time and so on. And with that, we are actually not such a large central bank. We are a central bank with a broad range of tasks. Because of all the central banks in Europe, we are one of the central banks with the most tasks. Because we also have a lot of supervision. That differs quite a bit internationally. So 2,000 employees. Yes, it sounds like a lot, but in the central banking world, we are seen as an efficient central bank.
Then I'll just continue with my stakeholder list. So we've had society broadly, the employees. Yes, then the clients, so to speak, the supervised institutions. How big is that group that you actually supervise?
We supervise over 850 financial institutions. But that is a mix of everything. It ranges from a large bank to a small trust company, to an investment firm, to a mutual insurer, a large pension fund, a small pension fund. In total, it is over 850 institutions.
Yes, that is a very large group and as you say yourself, the small and the large. So you have, I assume, teams that focus on the largest?
Yes, so it varies quite a bit in terms of intensity and size and complexity. Yes, ultimately we try to conduct risk-based supervision. So we try to form an opinion on where the greatest risks are and therefore also allocate the most capacity to that. That is not always large and small, but it is of course the case that if the risks manifest themselves at a large institution, then the impact is much greater. In addition, it is also important to note that we now conduct bank supervision within the framework of the SSM. So we are no longer alone in that. We just work together with the supervision teams of the ECB. There you have the Joint Supervisory Teams, as it is called. And that consists of employees from both the ECB and the Dutch Central Bank.
Clear. And the organizations, the public organizations around the DNB, is it the AFM that you have the most contact with? Or is it the ministry or other organizations?
Well, it depends a bit on where you sit in the organization, but on the supervision side, it is undeniable that most contacts go internationally to the SSM and nationally to the AFM. If you are more on the classic central bank, the money macro side, so to speak, of the Dutch Central Bank, then you have more contacts with The Hague. The Ministry of Finance is then mainly our, but also the Ministry of Social Affairs, when it comes to pensions, which is of course a dossier in the Netherlands. Yes. And you naturally have more and more contacts with the ECB. We are also increasingly becoming, I would say, the Dutch branch of the European multinational organization, the European system of central banks.
Clear. You have now been president of the Dutch Central Bank for more than 10 years. If you go back to the moment you started and now, what would you say are the most important differences in specifically the organization DNB? Has a lot changed in culture?
I hope so, because that was one of the objectives I naturally had when I took office. Look, when I took office in 2011, the organization was still quite shaken. There had been a global financial crisis, but that financial crisis was right in the heart of the Dutch Central Bank's work area. And frankly, yes, that surprised us to a large extent. We did not see the crisis coming in all respects. And we were still in the process of processing that a number of things had happened that we had not thought possible. But the first steps had already been taken towards improving our supervision. So what we had to do to move from analysis to action, for example, that was one of the titles of one of those internal evaluation reports, I can remember. Yes. And from that moment on, I was mainly busy rolling out that agenda to ensure that we started doing things right again and that we started to derive some more self-confidence from that. And I think that is the biggest difference. I think people now walk around here with straighter shoulders and also a bit proud of the Dutch Central Bank and the role we fulfill. And if you compare the global financial crisis of 2008-2009 with the pandemic, then I think we as the Dutch Central Bank can be very proud of the role we were able to play during the pandemic.
And you personally, when you first walked in here, well, you didn't walk in here for the first time, but for the first time as president. Can you still remember things where you thought: 'Oh, that actually surprises me. I didn't expect it to be like this here?'
Well, I naturally had a very long background at the Dutch Central Bank. Ultimately, I have been a bit of a fixture since 1995. I called myself the Heintje Davids of the Dutch Central Bank. I also had the invitation three times for the introduction program for new employees. So I knew the Dutch Central Bank. 2009 was the last time I left here and I came back in 2011. So it wasn't very surprising. I actually still knew most of the colleagues and so on. So in that sense, the bank had few secrets for me.
No, clear. I wanted to talk to you about the mandate of the Dutch Central Bank. And then I am just curious about how that is exactly structured. Because you say, I heard you say it again recently, I believe at Buiten, we actually have only one mandate. That is price stability.
The primary mandate. Yes, the primary mandate. I also see on your website several other angles where you naturally also have a mandate, including supervision, which is a very important mandate on the financial institutions. But how do you determine where that mandate begins and where it ends?
Look, from the different roles we have different mandates. So the monetary task of the Dutch Central Bank, we carry that out in the context of the Eurosystem. And that mandate is laid down in the Treaty of Maastricht. And it says that the primary mandate is price stability. And only when you have achieved price stability, can you possibly also pay attention to secondary objectives. And those are then mainly the objectives that the European Union has set for itself. And then it is of course also about economic growth, employment, but that can also be about a clean climate, for example. So the goals of the European Union are our secondary objectives. In addition, it is of course the case that we implement a number of supervision laws within the Dutch context. We do that within what we call the ZBO part of the Dutch Central Bank, the independent administrative body. There we naturally just carry out a statutory task that is laid down in the WFT and the Banking Act. Yes, that mandate is ultimately determined by politics in the Netherlands. It is the case that financial legislation and regulation now largely comes from Brussels, because that is one of the parts of the internal market where we have largely transferred our competence to Brussels. In addition, Brussels often implements supervision standards in European legislation and regulation that are agreed at a global level. And in those committees, we are often the Dutch Central Bank. So we are mainly in the Financial Stability Board, the Ministry of Finance is also in. But I think it is fair to say that the Dutch Central Bank has the leading role in the Netherlands. We are basically in the committee of banking supervisors. Well, we are in the international association of insurance supervisors and so on. So it is a bit, yes, supervision legislation and regulation comes, I would say, into being in close interaction between the Dutch Central Bank, the Brussels authorities, and also The Hague.
And is there sometimes a gray area that you yourself think or you internally in the management team think, well, this is something where we might be on the edge whether we should get involved or not? Because I spoke to someone recently who said: 'Yes, I am a big fan of you and the team, but he said: 'Yes, it goes a bit too far to get involved with whether a house belongs in box 1 or box 3, for example.' I'm just giving an example. But the question is actually, is it also sometimes a gray area for you where you say: 'Yes, then we have to weigh again whether that fits within my mandate?'
Yes. Look, to anticipate these kinds of questions, you try to be as transparent and explicit as possible about your mandate. We are talking about accountability here. And what we have done for that is that we have formulated a mission for ourselves, and that is that we want to contribute to sustainable prosperity in the Netherlands. That is of course also a broad mission. You can make choices about what falls under it and what does not. But I would dare to put the proposition on the table that, for example, the example you mentioned of whether the Dutch Central Bank should or should not address the fiscal aspects of the housing market, I would say that falls squarely within our mandate. Why? Because the housing market is probably the most important threat to financial stability in the Netherlands that is of domestic origin. Most threats to the financial stability of the Netherlands all come from abroad. They just wash over our country. That is because we are an open economy with an open financial sector. Look at the financial crisis of 2008-2009. But there is one factor where I say: 'Yes, that is really of domestic origin? That is our housing market. And fiscal policy plays an important role in the extent to which that housing market becomes overheated. And when that housing market becomes overheated, people will overreach themselves when it comes to mortgages and so on. And when the housing market then turns, yes, then you get underwater problems, financial instability. And that then has a negative impact on the prosperity we all create. A lot of fake wealth is created based on the housing market, which is paper wealth, but which then turns out not to be sustainable when the housing market turns.
So I actually shouldn't have given the example, because without the example, the question was actually whether there are also gray areas?
Yes, there are gray areas of course. In the beginning, we also wondered how explicitly we should, for example, get involved with climate change. Well, ultimately we came to the conclusion that the energy transition is one of the largest, if not the largest, structural change processes that the Dutch economy must undergo in the coming years. And that change is a given for us. Look, we don't get involved with the IPCC models and so on, but it is a given for us that we are going to go through that energy transition, that it is a large structural change process. And that will of course affect our mandate in all ways. This will determine price formation, inflation. Climate-related financial risks will of course affect the solvency and liquidity of the supervised institutions. So in other words, yes, we have concluded: 'This has so many interfaces with our mandate,' but we have been criticized for that and we are certainly still being criticized for it to this day.
You are listening to Leaders in Finance with Jeroen Broekema.
What seems incredibly difficult to me is that there are so many risks and then in the financial sector, you also have the whole macroeconomy with it. So not just the financial sector specifically, but how on earth do you make choices where your time, 2,000 people seems like a lot, but you yourself said you have to oversee an enormous area. How do you make choices where you really put your time? And you also say no to those things, because you can't keep overseeing all those risks, I imagine.
Yes, that is partly intuitive. But it is just true that if you look over the years, the financial cycle has become increasingly important for cyclical stability. So the blows that the Dutch economy has suffered in the last 10-15 years, many of those blows can be traced back to problems in the financial sector. So in other words, those things are also largely in each other's extension. It is so, I personally have to make choices about where I go, where I am not going to get involved personally, and so on. But I naturally have a whole board and we discuss things. Look, if I leave things because I don't get to them, then I naturally have my fellow board members. I am personally a bit less active, for example, on the train of payments, but my colleague Olaf Sluijpen is very active on that. I don't do anything about supervision myself, but I naturally have Elsbos and Steven Major who are responsible for that and that supervision is in excellent hands with them. So I have all confidence in that. The internal business lies with Nicole. I remain responsible for the management of this company. We do that as a board, but all the preparatory work and so on is then carried out under her leadership.
You already said yourself, I started at DNB. I came back and well, up and down. When you started at DNB for the very first time, did you ever think: 'I will become president here?'
No, that is No, sincerely not. That is also not something I actually never had that thought until the moment the first person started telling me: 'It might be that they will end up with you.' And that was very shortly before the moment they actually ended up with me. Look, I am quite ambitious in the sense that I work hard and consistently and that I also keep an eye on the fact that there was and is some movement in my career and so on. But you don't plan these kinds of things. So I have always done things in life that I thought: 'Yes, I can do it and I get better at it. I learn something new again.' So something of the roof tile model, that you have something for the next step that you want to stand on, but at the same time also want to learn something new. And that can then be in terms of getting to know another organization, or it can also be to do a new subject within the same organization. And so I also did within the Dutch Central Bank. The first five years I was purely on the macro-monetary side. And when I was at the IMF, I suddenly got the offer to come back to the Dutch Central Bank in the supervision business. Well, I don't know that at all, but it seemed like an interesting position and I have never regretted it.
Can you still remember that phone call from that civil servant or directly from the minister to become president?
Well, I was indeed called in by the minister, because at that time I was his highest civil servant, so I was called in by the minister. Yes, I can remember that. And I had a small warning from my predecessor here, Nout Wellink. So the question was not entirely a 100% surprise anymore. Yes, I can remember both moments. One was Saturday evening, the other was Tuesday afternoon. Well, the first thing I did then was ask for a bit of time. Because I also had the feeling that yes, this is not only going to impact my own life. This is also going to impact my family, my wife, my children. And those are not things you just decide on your own and that you also just want to discuss quietly with the people around you. In addition, I was 44. Well, knowing that for all my predecessors, this was a final position towards retirement. Well, after two terms I will be 58, so I will have to do something else then. So I also needed some confirmation here and there of can I do this? So I also took the time to call some people in my environment whose judgment I valued highly, who I knew had no interest whatsoever in giving me this judgment. I called them and just asked what should I do and so on. But ultimately everyone in my environment said, it may be a bit early, but you can do it. And then I also flipped the switch. Okay, then I'm going to do it and I'm going to do it fully.
Boom. Well, and that has gone well for you now for more than a decade.
It comes less, as a Groninger says. You know that is the biggest compliment you can get from a Groninger. Comes less. Yes. Or my wife comes from Groningen, so that's fine. [laughter] That yes. No, that is beautiful.
And if you go back further, you started studying economics. Was that already clear to you for a long time?
Yes, that was reasonably clear for a long time. I was already during my studies. Look, I had my coming of age in the late 70s, early 80s. Then I was a high school student and then, well, then the Dutch economy was a drama. Really a total basket case, so to speak. Approximately, very popularly said, 10% unemployment, 10% inflation, and 10% budget deficit. That was approximately, well, the numbers are not entirely correct, of course, but that was approximately how it stood. And yes, then as a student, you ask yourself how can something like this happen? I mean, how can a subject like economics, how can it produce such a drama? And can't this really be better? But these were really the dark beginnings of the 80s, with the civil servant strikes and the Lubbers cabinets that had to put things in order and so on. And then you also had a bank crisis. Suddenly a bank went bankrupt? While my economics teacher in high school said: 'Yes, that is not possible at all. A bank cannot go bankrupt.' Well, it could, right? Well, and that raised all kinds of questions for me about, yes, what is happening here and can't this be better? So that fascination for economics was born in me then.
And you already knew then that I'm going to do that in Groningen?
Well, honestly, that was actually a bit just everyone who was from the northern, then it was all a bit more regional than now. If you lived in the northern provinces and you wanted to study something you could do in Groningen, you just went to study in Groningen. That just had a regional function. Nowadays it is much more common to do your bachelor's in one place and then your master's. Because we still had a propaedeutic exam and then you graduated and yes, Groningen was just a logical choice. Moreover, it had a good economics faculty, so that was also fine.
So for me it was never another option. I actually never really looked at another university at that time.
No, I read a nice article in the Financieele Dagblad about your economics teacher. You just mentioned him. Was that also the trigger to actually study that?
Well, he was certainly one of my motivators. But yes, if you like a subject, you usually like the teacher too. That's because you have that interest. But certainly, he was also one of the people who motivated me. Yes.
Yes. And you grew up north of Groningen in a small village. How was it growing up there?
I only lived there for four years. I lived in Roodeschool until my fourth year, then until my eighth in Roden, and then I moved to Drachten where I lived until I was 18. So I think I had my youth more in Drachten. A medium-sized place. Yes, it's just like a medium-sized place is. What can you say about that? It has some new housing estates and a high school. Yes.
Yes. And maybe the upbringing says more. What kind of upbringing would you like to share about that? How you were raised?
Well, I come from a Calvinist nest, Reformed Protestant. You never really shake that off, do you? You take that with you. And I also come from an environment of 'just act normal, that's crazy enough'. We didn't really have it poor at home, but we did have some financial setbacks due to some unfortunate choices by my parents in the housing market. That is an experience you take with you, especially the way such things come about. But I didn't have an unhappy childhood or anything where I feel I have to make up for everything. No, not that. But you do take a number of norms and values with you. I think that I believe in norms and rules and things like that. I got that from home.
And brothers and sisters?
I have an older sister who is a high school teacher, German and French. And I have a younger brother who works in the IT sector.
