Dutch politicians, clashing over the future of the euro area and austerity measures before tomorrow’s parliamentary elections, agree on one thing: toughening rules on banks.
The Labor Party, vying for first place in recent polls, favors boosting a bank tax and imposing a levy on transactions, as does the Socialist Party, currently in third place. The Liberal Party, led by Prime Minister Mark Rutte, advocates stricter supervision of new financial products, while all three back a cap on bonuses. Whoever wins will probably have to forge a coalition with at least two rivals to gain a majority.
Politicians across Europe have tapped into public ire toward banks to woo voters after governments had to rescue financial institutions in 2008 and 2009, swelling budget deficits and curbing economic growth. In the Netherlands, a central bank survey published in June found that public confidence in the “competence and integrity” of the directors of financial institutions fell in 2012, a sixth straight drop.
“Bank bashing has become a favorite pastime among politicians,” said Sylvester Eijffinger, a professor of financial economics at Tilburg University in Tilburg, the Netherlands. “They can’t lose on that topic.”
Rutte, 45, has overseen a caretaker government since the April resignation of his Cabinet, which quit after Freedom Party leader Geert Wilders, who had backed a minority government of Liberals and Christian Democrats, withdrew support for spending cuts and tax increases. It’s the fifth election in a decade.
The Dutch for centuries have been leaders in global trade, giving the nation of 16.7 million people a banking industry that dwarfs the economy. The financial industry measures about 4.8 times gross domestic product, making it one of the largest in the world on that basis, according to the country’s central bank. It contributed more than 7 percent to GDP in 2010.
The industry’s size was reflected in the cost of the bailouts during the financial crisis that followed the collapse of Lehman Brothers Holdings Inc. in 2008. The Dutch state put up 30 billion euros ($38.4 billion) to rescue parts of ABN Amro Holding NV and Fortis and provided 13.8 billion euros for ING Groep NV, SNS Reaal NV and Aegon NV. It also took over the risk on 21.6 billion euros of ING’s U.S. mortgage assets, guaranteed banks’ debt and reimbursed Dutch depositors of Landsbanki Islands hf’s Icesave unit after the firm collapsed.
Taxpayers are still waiting for the return of billions of euros spent on those rescues, which led to an increase in government debt to 60.8 percent of GDP in 2009 from 45.3 percent in 2007, according to national statistics bureau data. Euro-area bailouts may push it to 72.9 percent next year, the Dutch government planning agency CPB forecast.
Officials for ABN Amro, ING, SNS and Rabobank Groep declined to comment on the election programs for this article.
ING’s shares fell 0.8 percent to 6.63 euros as of 4:24 p.m. in Amsterdam trading, cutting its market value to 25 billion euros. Insurers in the Stoxx Europe 600 Index advanced 0.4 percent. SNS Reaal rose 0.8 percent to 1.23 euros. ABN Amro and Rabobank aren’t traded.
The public perception of banks took a further blow this year as the global interbank rates-rigging scandal unfolded and Stichting Vestia Groep, the biggest Dutch provider of affordable housing, nearly collapsed after buying derivatives from banks that eroded its financial position as interest rates dropped.
“Bankers and investors are driven too much by seeking profits and too little by the interest of savers and a healthy long-term strategy,” the Labor Party said in a plan suggesting 10 ways to reform the financial industry. The party, led by Diederik Samsom, advocates raising the levy on bank profits to 1 billion euros from 600 million euros and imposing a tax on transactions.
“We would hand the bill to the banks, who caused this crisis,” Samsom, 41, said in a debate on Dutch television program EenVandaag on Sept. 6. “They would pay an extra bank tax and a financial transaction tax to ensure not only that they behave less recklessly but also contribute to the solution for this enormous problem they have created.”
The Labor Party hasn’t specified the type of financial transactions it would tax.
The Socialist Party proposes raising the bank tax by 900 million euros and adding 100 million euros in a financial transaction tax, said Arnold Merkies, a candidate for the legislature and financial spokesman for the party. The Freedom Party says it would “gladly triple the bank tax.”
“The Libor affair, the problems with the Spanish banks and Vestia here in the Netherlands clearly show things are still going wrong in the banking industry,” Merkies, 43, said in an interview. “We need to make sure the rules are in order. We’ve relied too much on self-regulation.”
The Dutch aren’t alone in picking on banks. French President Francois Hollande declared finance his “enemy” during his campaign against Nicolas Sarkozy this year. He pledged to force banks to split retail and “speculative” activities, to impose a tax on all transactions and to raise the levy on profits. David Cameron promised a “day of reckoning” for the “irresponsible rich” during his campaign to become U.K. prime minister in 2010.
In the Netherlands, measures already introduced to change the financial industry include a deposit guarantee fund and blueprints for splitting off and salvaging banks’ crucial operations in a crisis. Lawmakers agreed to set up a commission to consider structural changes, possibly including a separation of consumer and investment banking.
“Financial supervision should be strengthened,” the Liberal Party said in its program. “In future it should be possible to limit high risk activities from so-called utility functions of banks.”
A code of conduct agreed on by banks caps bonuses at 100 percent of fixed salaries, while bonuses to executives at state-aided firms are prohibited by law. Most parties are pushing for tougher rules, with Labor seeking to limit bonuses to 20 percent of fixed salaries, and the Christian Democrats calling for a limit of 25 percent.
The Liberal Party led with 35 out of 150 seats in a poll published by TNS NIPO today, while the Labor and Socialist Parties would get 34 and 21 seats respectively if elections were held today. The poll surveyed 1,917 people and has a margin of error of two to three seats.
The proposals already enacted are likely to squeeze banks’ earnings at a time when they’re also building capital buffers to comply with regulatory demands and facing a shrinking Dutch economy. The 600 million-euro levy, adopted by the Dutch Parliament’s upper house in July, will cut profit by about 100 million euros in the second half, ABN Amro said in its half-year results statement. The impact for Rabobank, a cooperative lender based in Utrecht that didn’t need a government rescue, will be twice that amount.
An increase of the levy by 400 million euros would cut ING Bank’s 2013 earnings by about 4 percent, estimated ABN Amro analyst Jan Willem Weidema. The biggest Dutch financial-services firm also pays about a third of the total tax.
“Banks must try to be self-supporting and maintain rock-solid buffers,” Rabobank Chairman Piet Moerland said Aug. 23. “A bank tax doesn’t fit in with that goal.”
The Dutch Central Bank has designated ING, Rabobank, ABN Amro and SNS as “systemically important,” or too big to fail. The four need to build a capital buffer of as much as 3 percentage points more than the 7 percent required under international rules known as Basel III, which start taking effect next year.
The Dutch economy, the euro area’s fifth largest, may shrink 0.5 percent this year, according to the country’s planning agency. House prices have dropped 15 percent from a 2008 peak and may fall 5 percent next year, ING economists said in a note dated Aug. 9.
Banks have sought to maintain earnings by cutting costs. State-owned ABN Amro last year set out to trim 2,350 jobs on top of an earlier program of 6,000 positions aimed at eliminating overlap between the former Fortis and ABN after the government takeover. ING is pruning 2,700 jobs at its Dutch consumer bank by 2013, while Rabobank is cutting as many as 3,500 jobs out of 35,000 in its Dutch banking division by 2016.
“I understand people’s stance after all that has happened,” SNS Reaal Chief Executive Officer Ronald Latenstein told reporters last month. “I just hope five years from now we don’t look back and realize we’ve created a financial industry that is exactly what we didn’t want in terms of supporting the real economy.”