A potential risk: the disappearance of the head quarters of Dutch banks that will have been taken over by foreign banks. Why? Because the Dutch banking sector would not be competitive enough. In an interview with BNR Nieuwsradio, Professor of Monetary Economics at Erasmus School of Economics Casper de Vries responds to this statement and speaks on the policy of the ECB.
Dutch banking association NVB (Nederlandse Vereniging van Banken) announced that the Dutch banking sector may fall prey to foreign banks owing to differing regulations. One particular norm that is mentioned, is the bonus scheme: in the Netherlands, bankers are subject to strict regulations concerning potential bonuses. There is a ceiling: employees of financial enterprises can earn a variable bonus of up to a maximum of 20% of one’s fixed pay.
Results of mergers and acquisitions
According to De Vries, the NVB is right in a sense: another contributing factor is bankruptcy legislation. However, whether that necessarily makes Dutch banks an easy victim for acquisitions, is not to be said. It is possible to follow a policy wherein banks are actively shielded form foreign mergers and acquisitions, by making foreign banks comply with Dutch legislation in case of an aforementioned takeover. By stimulating all sorts of mergers, the European Central Bank is conducting an ill-functioning policy. De Vries: ‘it [these mergers] leads to even bigger molochs; the question is what the benefit to these bigger banks is. If you merge two bad banks, there is an even bigger chance that the bigger bank goes bankrupt and requires state support’.
The ECB aims at consolidation, because there are some banks that are in a precarious position. However, De Vries points out that it hasn’t been established at all that a bigger bank as result of a merger has a stronger financial position. This push for consolidation is a result of the French view on the banking sector, in which competition with American banks is the main objective. Unfortunately, this leads to politics of illusion: ‘political forces determine the outcome, not economic rationale’. One possible solution to the difficulty of big banks is to demand the disposal of equally big components of a bank; one could take over the investment department and get rid of the consumer part. And the reason that the NVB wants to increase the competitiveness with the international banking sector? ‘They defend their own interests, they want to pay out bigger bonuses’.
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You can listen to De Vries' appearance on BNR Nieuwsradio, 12 January 2021, here.