Banking vision paper: towards a robust, ethical and competitive banking sector

The Netherlands needs a robust, ethical and competitive banking sector, a sector that serves the Dutch economy and focuses on its customers. This is the key message of the vision paper on the Dutch banking sector that the cabinet has approved at the proposal of Finance Minister Jeroen Dijsselbloem. The paper responds to recent recommendations by the Wijffels Committee and makes a series of policy proposals.

‘Consumers and businesses depend heavily on banks,’ said Minister Dijsselbloem. ‘So it is vital for the banking sector to function properly and take fewer risks than in the past. In this vision paper, I present a broad approach that will make the banking sector strong and stable again and help restore confidence in it.’

The paper explains the government’s approach to the banking sector. Key policies include introducing stricter capital requirements, enhancing and expanding supervision, boosting competition, and promoting ethical conduct and customer focus. The main measures are set out below.

Robust banking sector

  • Higher capital requirements to limit the risks to financial stability. The Netherlands will also impose extra capital buffers on systemically important banks.
  • A better ratio between banks’ equity capital and their total assets. The government is seeking a higher minimum leverage ratio of at least 4% for systemically important financial institutions.
  • Cleaning up bank balance sheets will be given priority. An in-depth analysis of European bank balance sheets is therefore required as soon as possible, followed by compulsory recapitalisation where necessary.

Effective supervision and more instruments

  • Regulators must be able to intervene faster if banks get into difficulties. Banks must therefore be organised in such a way that they can be split up if an emergency arises. Dutch banks, including the central bank (De Nederlandsche Bank), will have to draw up recovery and resolution plans (‘living wills’) by the end of the year. This will safeguard payment transactions, savings and lending.
  • If a financial institution goes bankrupt, taxpayers must not be left to foot the bill. The ‘bail-in principle’ will apply, meaning that shareholders and creditors will be the first to take a hit.
  • Rapid introduction of a European banking union. It will definitely include European banking supervision, a European resolution mechanism, harmonised rules and, last but not least, a European deposit guarantee scheme.

Open and diverse

  • Competition in the Dutch banking sector quickly needs to be boosted, as it encourages banks to innovate, operate efficiently and cater for the needs of customers.
  • The government is therefore examining how to facilitate market access for new providers.
  • The banking union can help to promote cross-border competition between banks in the long run.
  • The government also supports alternative forms of financing, such as credit unions, crowd funding and SME bonds.

Ethical banking sector

  • More people will have to take the bankers’ oath in the future. This will include staff who have contact with customers and staff who can significantly affect a financial enterprise’s risk profile, such as securities dealers.
  • Introduction and development of disciplinary rules by the financial sector. This will promote ethics and professional standards.
  • The suitability and reliability assessment carried out by regulators will be expanded to include staff responsible for transactions involving large financial risks.
  • Further restraint in remuneration policy. To further curtail risky behaviour, a new act of parliament will be introduced, harmonising and tightening existing measures and laying down new ones, including a 20% ceiling on bonuses.

Customer focus

  • Financial products must be transparent. Consumers need to be able to make a sound, objective assessment when buying them.
  • The government will investigate whether the introduction of standard products, as recommended by the Wijffels Committee, could strengthen the position of consumers.
  • In accordance with the coalition agreement, the loan-to-value (LTV) ratio for mortgages will be reduced in steps to 100% by 2018. A further stepwise reduction in the LTV ratio is desirable after 2018 in the interests of consumer protection and healthier bank balance sheets. Further proposals will be presented once the housing market recovery is firmly under way. A lower LTV ratio will also make it easier for foreign mortgage lenders to enter the Dutch market.