Is your pension money safe? Central Bank tests how banks and pension funds would handle a financial crisis

GREAT BAY--The Central Bank of Curaçao and St. Maarten (CBCS) has concluded that the financial system shared by the two countries remains relatively strong and capable of handling significant financial shocks, despite the close financial relationships between banks, pension funds and insurance companies.

In its 2026 analysis titled 𝘐𝘯𝘵𝘦𝘳𝘤𝘰𝘯𝘯𝘦𝘤𝘵𝘦𝘥𝘯𝘦𝘴𝘴 𝘪𝘯 𝘵𝘩𝘦 𝘔𝘰𝘯𝘦𝘵𝘢𝘳𝘺 𝘜𝘯𝘪𝘰𝘯 𝘰𝘧 𝘊𝘶𝘳𝘢ç𝘢𝘰 𝘢𝘯𝘥 𝘚𝘵. 𝘔𝘢𝘢𝘳𝘵𝘦𝘯: 𝘈𝘯 𝘐𝘯𝘪𝘵𝘪𝘢𝘭 𝘈𝘴𝘴𝘦𝘴𝘴𝘮𝘦𝘯𝘵, the Central Bank examined how money moves between these institutions, whether problems at one could affect others, and how prepared the financial system is to withstand serious financial difficulties. The findings are generally reassuring, although the CBCS cautions that the same connections that help financial institutions operate normally could also allow problems to spread during a crisis.

The analysis is relevant to ordinary residents because banks, pension funds and insurance companies are more closely connected than many people realize. When workers contribute to pension plans or residents pay insurance premiums, those institutions do not simply hold all that money themselves. They invest portions of it and place substantial amounts in commercial banks, which use deposits to support their operations, including lending.

Pension funds and insurers depend on those banks to safeguard money needed to pay retirement benefits, insurance claims and other obligations. This means that difficulties at one institution can affect another. If a pension fund suddenly withdraws a large deposit, the bank must have enough readily available money to meet that withdrawal. Conversely, if a bank fails, pension funds and insurers holding deposits there could suffer losses.

Financial experts refer to these relationships as interconnectedness, meaning the degree to which financial institutions depend on one another. According to the CBCS, these connections are not necessarily dangerous.

They can strengthen the financial system when money is spread across different institutions, reducing dependence on any single bank. However, if too many organizations rely heavily on one institution, financial difficulties there could affect several others simultaneously. Concerns about one bank can also influence confidence in others, potentially encouraging depositors to move their money and creating additional pressure across the financial system.

According to the Central Bank's findings, pension funds and insurance companies covered by the analysis held approximately Cg 804 million in deposits at local banks as of the fourth quarter of 2025. Of that amount, Cg 336 million was held in demand deposits, which can generally be withdrawn immediately, while Cg 468 million was held in time deposits, including savings deposits, where funds are typically placed for longer periods.

The CBCS identified 113 demand deposit connections and 44 time deposit connections between institutional investors and banks. The analysis covered 34 institutional investors, representing approximately 81 percent of the 42 such institutions supervised by the Central Bank.

One of the most important findings was that these deposits were not concentrated in a single bank. Approximately 88 percent of the money was distributed across five of the seven banks examined, with the bank holding the largest share accounting for 25 percent of total deposits. The CBCS also found that 17 of the 34 institutional investors maintained deposits at four or more banks, while only five relied on a single bank.

This distribution reduces the risk of one bank's difficulties significantly affecting an institution's entire deposit portfolio. For example, a pension fund that spreads its deposits across several banks is generally better positioned to manage difficulties at one institution than a fund that keeps all its bank deposits in one place.

Pension funds accounted for the largest share of these deposits, representing approximately 57 percent of the total. They held Cg 169 million in demand deposits and Cg 292 million in time deposits, bringing their combined holdings to approximately Cg 461 million. Life insurance companies accounted for approximately 22 percent, with Cg 77 million in demand deposits and Cg 96 million in time deposits.

Non-life insurers, which provide coverage for property, vehicles and other risks, accounted for approximately 21 percent, holding Cg 89 million in demand deposits and Cg 80 million in time deposits. Overall, 42 percent of the money was held in demand deposits and 58 percent in time deposits, providing a relatively balanced arrangement between funds that can be accessed quickly and those generally maintained for longer periods.

The CBCS acknowledged that banks in the monetary union have previously experienced financial pressure when large institutional investors moved their deposits. This type of pressure is known as a liquidity problem, which occurs when a financial institution does not have enough money readily available to meet immediate obligations.

A bank may own substantial assets but still encounter difficulties if several major depositors demand their money simultaneously. Similarly, if a bank experiences serious financial trouble, pension funds and insurance companies could lose some or all of their deposits. These possibilities explain why the Central Bank closely monitors how financial institutions are connected and whether those relationships could threaten wider financial stability.

To determine how well the banking system could handle such situations, the CBCS examined stress tests presented in its 2026 Financial Stability Report. These tests simulated three scenarios: the withdrawal of a bank's largest depositor, its three largest depositors, and finally its five largest depositors.

Under each scenario, the banking sector's available liquid assets declined, as would be expected when substantial amounts of money are withdrawn. However, the ratio of liquid assets to total assets remained well above the supervisory threshold of 20 percent. In practical terms, the banking system retained sufficient readily available financial resources in these simulations to absorb significant withdrawals without requiring support for the system as a whole.

The Central Bank also examined what could happen to pension funds if banks holding their deposits were unable to repay all the money owed. The tests simulated potential deposit losses ranging from 5 percent to 50 percent at domestic and foreign banks.

Even under the most severe scenario, in which half the value of the affected deposits was lost, the pension funds' funding ratio remained above the Central Bank's early warning level of 104 percent. A funding ratio measures whether a pension fund has sufficient assets to cover its calculated pension obligations. A ratio of 100 percent broadly means its assets equal those obligations, while the CBCS's 104 percent warning level includes an additional four percent financial margin.

These results suggest that the pension funds examined have some capacity to absorb substantial losses without immediately falling below the Central Bank's warning level. That is encouraging for workers and retirees whose future benefits depend on the financial health of pension institutions.

However, the CBCS findings do not guarantee that pension funds could withstand every possible financial crisis or that pension payments could never be affected. The simulations assess particular risks under defined conditions, and actual financial emergencies may develop differently. Similarly, the positive banking results do not mean that individual banks can never experience difficulties, but rather that the sector demonstrated resilience under the scenarios tested.

To strengthen its ability to identify potential problems, the CBCS has expanded the financial interconnectedness analysis it began conducting in 2022. In 2026, it introduced an Interconnectedness Dashboard, a monitoring system that shows how banks, pension funds and insurance companies are financially linked. The tool allows the Central Bank to examine how much money different institutions hold at particular banks, the types of deposits involved and whether too much money is becoming concentrated in one institution.

This information has also been incorporated into the CBCS's broader Early Warning Dashboard, helping regulators identify developing risks before they become serious financial problems. The analysis was prepared by CBCS Macroprudential Oversight Specialist Thari Romero, while the dashboard was developed by Financial Stability Research Specialist Zsani Hato-Boeldak.

Despite the positive findings, the Central Bank emphasized that this is an initial assessment rather than a complete examination of every possible financial risk. The study focused primarily on deposits held by pension funds and insurance companies at local banks. Other financial relationships, including direct exposures between banks and situations in which several institutions invest in the same assets, were not included.

These connections could also become important during a financial crisis and may be examined in future assessments. The CBCS therefore considers continued monitoring essential, particularly because relationships that support financial stability under normal conditions can become sources of financial pressure during severe economic difficulties.

For residents of St. Maarten and Curaçao, the report provides a measure of reassurance about the financial institutions that support savings, retirement arrangements, insurance protection and wider economic activity. The Central Bank found that institutional deposits are spread across several banks, reducing excessive dependence on any single institution, while banks and pension funds demonstrated an ability to withstand the financial shocks examined.

Its overall conclusion is that the current relationships between these institutions contribute more to financial stability than to financial vulnerability. The central message is that the shared financial system appears capable of handling significant financial pressure, but maintaining that stability depends on careful supervision, adequate financial reserves and identifying risks before they develop into larger problems.

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