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Dutch Tax Hampers Banks From Recapitalizing, Committee Says

The Netherlands’ bank tax has made it harder for lenders to rebuild their capital and should be scrapped, according to a commission that studied the levy.

“Reconsider the banking tax, because it has an adverse effect on the accumulation of equity for banks,” Herman Wijffels, a professor and lawmaker who led the government-commissioned inquiry into the structure of Dutch lenders, said in a report published today. The bank tax will also restrain banks from making loans, the report said.

The Dutch parliament’s upper house approved the bank tax almost a year ago, aiming to raise 600 million euros ($515 million) annually, trim its budget deficit to meet European Union rules and force lenders to share the burden of ensuring financial stability. The Netherlands is grappling with how to regulate a financial industry that’s more than four times the size of the economy, even after the splintering of ABN Amro Holding NV, the nationalization of SNS Reaal NV and the global credit crisis left it diminished in size and importance.

The best way to improve the stability of Dutch banks is to strengthen their capital positions to increase the “distance to default,” the report said. Systemically important banks that will be supervised by the European Central Bank should meet Basel III capital rules by 2014 instead of 2019, the committee advised.

Since 2008, the Dutch state provided more than 95 billion euros of rescue funds for the industry, including guarantees and capital injections. In February, it spent 3.7 billion euros to rescue SNS Reaal, the nation’s fourth-biggest bank.

Surging Debt

The government will comment on the Wijffels commission’s recommendations after the summer recess, Finance Minister Jeroen Dijsselbloem said in a letter to parliament today. At the same time, he will present a plan about the future of ABN Amro NV, SNS Reaal and ASR Nederland NV, it said.

In the fourth quarter, ABN Amro took a 112 million-euro charge to pay the bank tax, while Rabobank Groep took a 179 million-euro charge.

Bank bailouts helped drive Dutch government debt to 71 percent of gross domestic product in the first quarter of 2013, up from 45 percent in 2007, according to figures from the Central Planning Agency. The nationalization of ABN Amro and aid to ING Groep NV (INGA) in 2008 contributed more than 10 percentage points to the debt-to-GDP ratio that year.

The nationalization of SNS Reaal in February increased debt by 1.6 percentage points, Dijsselbloem said at the time.

EU Commission

The Dutch report comes as EU regulators consider how far to go in breaking up large banks and splitting riskier activities from traditional banking in a bid to take taxpayers off the hook for bailouts and protect depositors.

The EU is examining options for how big a proportion of banks’ trading activities should be shifted into separately capitalized units, according to plans published by the European Commission in May in the wake of proposals by a group led by Bank of Finland governor Erkki Liikanen.

The Wijffels committee echoed the Liikanen group in recommending banks avoid proprietary trading. It also said the universal banking model, combining investment, corporate and consumer banking, should be maintained as it’s necessary to “finance international activities of Dutch companies and to support them with a broad palette of services.”

The committee also examined the possibility of new entrants to the banking market, given that the four biggest Dutch lenders account for more than 80 percent of the industry.

Bailouts

Wijffels, a former chairman of Rabobank, was appointed to head the committee last year. He’s professor of sustainability and societal change at the University of Utrecht, and a member of the Christian Democrat party, or CDA.

ABN Amro, which was one of Europe’s biggest banks a decade ago, was broken up after its record 71.9 billion-euro takeover by Royal Bank of Scotland Group Plc, Fortis and Banco Santander SA in 2007. A year later, the credit crunch drove Fortis to the verge of collapse, forcing the Netherlands to take over its Dutch banking and insurance units, including the former assets of ABN Amro, for 16.8 billion euros. Costs of that rescue later swelled to about 30 billion euros.

In the same year, the Dutch state provided a 10 billion-euro bailout to ING, the country’s biggest financial-services company, and a first round of 750 million euros in aid to SNS Reaal. Rabobank, a cooperative lender, was the only one of four Dutch banks designated as “too big to fail” by the central bank that didn’t need a government lifeline.

ABN Amro’s workforce fell to 23,059 at the end of last year from 30,000 in 2008. It now operates in 25 countries, down from 56 before its break-up, and relies on the Netherlands for 82 percent of operating income. ING was ordered by the EU to shrink its balance sheet by 45 percent and sell its insurance arm, helping shrink its workforce to about 83,000 from 130,000.

To contact the reporters on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net; Corina Ruhe in Amsterdam at cruhe@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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