Dutch Economists Urge U.K.-Style Study on Splitting Up Ba
Dutch Finance Minister Jan Kees de Jager supported a parliament proposal to set up an independent commission to study the future structure of the country’s banking industry after a European group presents its own report.
“A Dutch committee should not work parallel to a European group,” De Jager told parliament in The Hague today. “I am open to such a commission” being established in the Netherlands “if it takes into account the results of a European commission, expected after summer.”
The European Union’s executive body last month published the members and remit of a group of experts that will examine whether banks should build firewalls to protect taxpayers and customers when failure of one part of a lender threatens to cascade throughout the company.
The group, led by European Central Bank council member Erkki Liikanen, is studying whether structural reforms of European banks would strengthen financial stability in addition to planned reforms.
The lawmakers’ proposal echoed a suggestion made by a group of Dutch economists to demand a committee similar to the U.K.’s Independent Commission on Banking that would study separating investment banking from lenders’ essential public functions.
“Contrary to comparable countries like the U.K. and Switzerland, the Netherlands doesn’t have plans yet to build in additional safeguards” to limit risks from its financial industry, the economists, led by former Rabobank Groep chairman Herman Wijffels, said in a letter to members of parliament dated March 26.
Dutch lenders have a combined balance sheet almost five times the size of the economy, and bailouts of institutions including ING (INGA) Groep NV and ABN Amro Group NV in the wake of the global financial crisis stretched the nation’s budget. De Jager proposed making banks “ring-fence ready,” rendering it easier to set apart so-called utility functions in times of crisis.
“The Minister insufficiently acknowledges the advantages of structural measures,” the economists said of De Jager. Wijffels suggested a group of experts should study what reforms would be suitable in the Netherlands, including a legal split of investment and consumer banking operations. He is also a member of the European group of experts advising the European Commission.
John Vickers, chairman of the U.K. commission, last year recommended that British banks insulate their consumer units from investment banking to increase stability in the financial system. The U.K. government has pledged to pass laws by 2015 to implement his proposals.
De Jager has said British-style ring fencing makes less sense for the Netherlands, as investment banking accounts for a smaller share of Dutch lenders’ balance sheets. He has also said Dutch banks can’t insulate themselves entirely from investment- banking risks given the small size of local deposits relative to their loan books, making them reliant on counterparties for hedging and external funding.
“All in all, our proposal is pretty similar to Vickers,” De Jager said today. “We propose to separate activities operationally and financially within a bank.”
ING, Rabobank, ABN Amro and SNS Reaal NV (SR) have been decreed “systemically important,” meaning the Dutch state demands additional capital requirements of 1 percent to 3 percent on top of Basel III requirements.
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