Dutch Banks Warn of Higher Leverage Ratios Without Europe

Dutch bankers including ING Groep NV Chief Executive Officer Ralph Hamers warned the Netherlands against raising capital requirements without waiting for a European-wide agreement.

“There is a group of people calling for further tightening of rules, if needed ahead of developments in Europe. I understand the worries underlying this, yet a lot has happened since 2008” to make banks safer, Hamers, who has led the biggest Dutch financial-services company since October, told lawmakers in The Hague today. “It’s important to get a European framework in line with the international interrelatedness of the financial industry.”

The assets of the Dutch finance industry are more than four times the nation’s gross domestic product, with the four biggest lenders accounting for almost 80 percent of that. Jeroen Dijsselbloem, since becoming finance minister a year ago, has moved to cap bankers’ pay and improve buffers to limit risks stemming from the size and concentration of lenders.

Banks considered too big to fail should seek a ratio of capital to assets, or leverage ratio, of at least 4 percent, he said in August. That exceeds the 3 percent threshold proposed by the Basel Committee on Banking Supervision for 2018. While favoring European-wide implementation, Dijsselbloem wants to pursue the higher leverage ratio unilaterally in case governments can’t agree. Some lawmakers and academics want an even higher threshold.

Leverage Ratios

An increase of the leverage ratio to at least 5 percent would mean Dutch banks would have to add 20 billion euros ($27 billion) in capital, which would have a large impact on both lenders and the economy, said ING’s Hamers, 47. His comments were echoed by Jan Sijbrand, the central bank director responsible for banking supervision, who recommended the government stay close to Basel Committee’s plans.

“The discussion on maintaining a level playing field is relevant yet doesn’t address the fundamental issue,” Harald Benink, professor of banking and finance at Tilburg University, told reporters today. “The larger picture is that buffers are still low and need to go up to limit risks for taxpayers.”

Low Risk

Dutch Banking Association Chairman Chris Buijink today also called for European-wide rules, with leverage ratios as a backstop on top of risk-weighted capital demands. Lenders in the Netherlands increased their common equity Tier 1 ratio, which takes into account risks for specific assets, to 11.5 percent at the end of 2012. That compares with a leverage ratio of 3.4 percent, according to Dutch central bank data.

Banks including Rabobank Groep, ING and ABN Amro Group NV, have a relatively high amount of assets considered low risk, including 592 billion euros in residential mortgages and 479 billion euros in loans to government-related institutions, Buijink said. Focusing only on leverage ratios would put Dutch banks at a disadvantage, he said.

The Netherlands provided more than 95 billion euros for rescues of financial companies since 2008, including guarantees and capital injections for ING, ABN Amro and Aegon NV. In February, it spent 3.7 billion euros to nationalize SNS Reaal NV, the fourth-biggest bank, after real estate losses brought it to the brink of collapse.

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