Dutch lessons for the banking inquiry

Like Australia, the Dutch banking system is dominated by four banks but it emerged from the global financial crisis quite differently and offers some insights for the Murray financial system inquiry.

Peter Blom, chairman of the Global Alliance for Banking on Values (GABV) and chief executive officer of Triodos Bank, the world’s leading sustainable bank, is in Australia this week for a series of meetings scheduled as part of the annual GABV meeting that is being hosted by bankmecu in Melbourne.

The week-long meeting features two public events - a business leaders lunch on redefining capitalism and financing our future prosperity and a public forum on banking on a more sustainable world. Both events are being held in Melbourne today.

In the first of three articles, Blom observed that the global financial crisis didn’t hit Australia as it hit Europe. That’s both a good thing and a bad thing in that European banks aren’t finding it easy to recover but the crisis has made people think about the financial system and the role of banks.

Many banks want to get back to business as soon as possible after the crisis but GABV’s 25 member banks from around the world think there are lessons to be learnt. For example, what happens when banks are allowed to become bigger than the economy.

“Have we become over-banked and over-exposed to financial risk?” asked Blom.

A diverse banking landscape

In his opinion, just as any economy has a range of businesses ranging from large corporations to small businesses, it needs a diverse banking landscape that can serve the needs of the entire spectrum of the economy.

“Job creation and value creation comes more from small- and medium-sized businesses and they need a proper ecology of banks,” he said. “I don’t believe the economy is served well by just a few big banks.”

Like Australia, the Netherlands is dominated by four big banks that due to their too-big-to-fail status, get higher credit ratings and an associated funding advantage.

“If banks are too big to fail and they get extra high ratings from credit ratings agencies, who is helping who?”

A Dutch study found that the funding advantage was worth more than the total combined profit of those four banks. “To the extent these banks are subsidised, what does it mean for the whole banking landscape?”

“There is a real moral hazard, using the implicit government support to leverage even more,” said Blom. “Regulators and politicians, in particular, are looking at that.”

“Since Australia has such a similar banking landscape, that might be an interesting question to look into,” he said.

Dutch, Global Alliance for Banking on Values, GABV, Triodos Bank, sustainable bank, bankmecu, regulation, big four
Marion Williams, mwilliams@financialpublications.com.au
Article Posted:
March 05, 2014

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