Current issues related to economy, (responsible) investment, pension and income: every week, an APG expert gives a clear answer to the question of the week. This time: macroeconomist and expert strategist Charles Kalshoven on the question of why the Netherlands has relatively few banks.
Savings rates offered by Dutch banks are among lowest in Europe. That is why the Consumer and Market Authority (ACM) is now investigating whether the Dutch banking sector has sufficient competition. In Germany, for example, there are forty times as many banks. Why is it that there are relatively few banks in the Netherlands? As Kalshoven sees it, there are several reasons for this.
Kalshoven puts the statement that the Netherlands has few banks into perspective. “If I use iDeal, I get to choose between fourteen banks. It is true, however, that the big three basically call the shots here: ING, Rabobank and ABN AMRO. The three of them together have a very large market share.” The reason that a few big banks serve 83 percent of the Dutch population may have to do with our country’s history as a trading nation, Kalshoven says. “In the seventeenth century, trade in goods took off and this was accompanied by substantial flows of money. The development of the financial sector began early here. The Amsterdam Stock Exchange is the oldest in the world. People have been able to trade in VOC shares here since 1602. And the Amsterdam Exchange Bank has been providing financial stability since that time. Against that background, banks were able to flourish. There used to be more of them, but over the years there were many mergers, to achieve economies of scale or because different operations complemented each other, for example.
Because banks have been required to carry out extensive money laundering risk checks for several years now, the argument of economies of scale has become stronger. “An estimated 13,000 bank employees in the Netherlands are solely engaged in money laundering controls. For a small bank wanting to enter the market, that is a substantial hurdle to overcome.”
Another example of increasing regulation for banks is that since the 2008 financial crisis they have been required to maintain large equity buffers. “Banks’ profits have increased since the financial crisis, but the return on equity is quite stable, partially because banks have to hold more equity. In the stock market, banks are worth less than you would expect based on book value. But that is not a sign that investors have high expectations of profitability. The high costs and regulatory burden also make it difficult to successfully establish a new bank.”
What the banking landscape looks like also depends on politics. The Hague, for example, has not often stopped bank mergers in the past and sometimes even encouraged them. Kalshoven: “The fact that Germany has many more banks is partly due to the federal form of government. Traditionally, not only the federal states but also the regions below them have their own banks. We see something similar in the United States. In France, which is much more centralist, and where all roads lead to Paris, so to speak, they have a few very large banks just like we do here.”