Abstract

To understand the breadth of the economic changes in the Netherlands, and the range of policy challenges facing the authorities, an account of financial sector developments is indispensable. In the course of the 1990s, the financial sector in the Netherlands displayed a new dynamism, adding another dimension to the structural changes described in the previous sections. It acted as a source of growth both directly and indirectly through its support for other sectors. In the domestic market, banks and insurance companies developed into large financial conglomerates, and financial institutions diversified their investment portfolios as well as the services they offered. Exploiting the creation of a solid home base, the main financial groups vigorously expanded their activities abroad, with varying degrees of selectivity. Employment in the financial sector increased slightly faster than in the economy as a whole, by 9 percent from 1990 to 1997, to 206,000 (in full-time equivalents). This increase in part reflected the expansion of banks’ international activities, as well as an increasing emphasis on underwriting, market making, consultancy, and fund management, and came about in spite of widespread rationalization, including the closing of many local branch offices. Also, financial sector growth was linked to the expansion of domestic demand through the extensive provision of credit, in particular mortgage lending. On the other hand, rapid asset-price inflation in recent years, associated with the financial sector’s asset diversification and the ample provision of mortgage credit, has also raised risks for continued economic growth—an issue developed in the Section V.

To understand the breadth of the economic changes in the Netherlands, and the range of policy challenges facing the authorities, an account of financial sector developments is indispensable. In the course of the 1990s, the financial sector in the Netherlands displayed a new dynamism, adding another dimension to the structural changes described in the previous sections. It acted as a source of growth both directly and indirectly through its support for other sectors. In the domestic market, banks and insurance companies developed into large financial conglomerates, and financial institutions diversified their investment portfolios as well as the services they offered. Exploiting the creation of a solid home base, the main financial groups vigorously expanded their activities abroad, with varying degrees of selectivity. Employment in the financial sector increased slightly faster than in the economy as a whole, by 9 percent from 1990 to 1997, to 206,000 (in full-time equivalents). This increase in part reflected the expansion of banks’ international activities, as well as an increasing emphasis on underwriting, market making, consultancy, and fund management, and came about in spite of widespread rationalization, including the closing of many local branch offices. Also, financial sector growth was linked to the expansion of domestic demand through the extensive provision of credit, in particular mortgage lending. On the other hand, rapid asset-price inflation in recent years, associated with the financial sector’s asset diversification and the ample provision of mortgage credit, has also raised risks for continued economic growth—an issue developed in the Section V.

The financial sector has been strongly influenced by deregulation, and an acceleration in European integration, since the mid-1980s. Both forces have reinforced the general trends toward concentration and internationalization that are apparent across advanced economies. The deregulation of the financial sector during the 1970s and the 1980s was brought to a conclusion in 1990, when the prohibition on mergers between banks and insurance companies was lifted. Competition in the financial sector was enhanced by the liberalization of international financial transactions, completed in 1986.1 The new regulatory environment triggered changes that are still under way, enhanced further by the prospect of more intense cross-border competition with the move to EMU.

Rapid changes in financial markets have continued to pose a variety of challenges for supervisors, including the central bank (De Nederlandsche Bank—DNB). The development of financial conglomerates requires supervisors to take into account groupwide considerations. Financial sector diversification and entry into new markets require upgrading the control system and cross-border supervision and adequate monitoring of international exposure. Questions about financial sector soundness have been raised by the rapid expansion of domestic mortgage credit, as well as the sector’s exposure to the emerging market crisis. These changes in the financial sector, and the challenges they raised for policy, are discussed in turn in the remainder of this section.

Recent Trends

The size of the Dutch capital market has grown fast, by more than 15 percent on average from 1990 to 1997 (Table 4.1). An important component of this growth has been a sharp increase in annual mortgage lending from 15 billion guilders to 58 billion guilders, with banks accounting for almost all of the increase. A further component of growth has been large and increasing capital outflows, which largely correspond to increased holdings of stocks and bonds by institutional investors; the share of foreign bonds in institutional investors’ total bond holdings increased from 19 percent at the end of 1995 to 31 percent at the end of 1997 (see Box 4.1). On the other hand, reflecting the improved fiscal balance, demand for funds by the general government has declined. In the first half of the 1980s, the government accounted for almost three-fourths of total net demand, compared with 15 percent on average between 1988 and 1997, with a sharp decline after 1992.

Table 4.1.

Supply and Demand in the Capital Market1

(In billions of guilders)

article image
Source: De Nederlandsche Bank (1998).

In the capital market, financial instruments with a maturity of two years or more are traded. Reported flows exclude portfolio shifts by a sector within a category of assets or liabilities.

Comprising insurance companies, pension funds, and social security funds.

The negative net demand in 1997 largely stems from a decrease in government deposits at the central bank.

Also comprising investment companies. Included in 1990 under net supply by households and firms, and net demand by other financial institutions.

A Profile of the Financial Sector

Among the main features of the Dutch capital market are an important role for institutional investors, a well-developed banking and equity market, a highly concentrated banking system, and limited demand for external funds by firms.1

A high share of savings is channeled through institutional investors. These funds mainly include pension funds and insurance companies. The important role of pension funds stems from the funded pension system in which about 1,000 (company or branchwide) funds guarantee defined benefits to retirees. With compulsory participation, these funds account for most of personal saving. The position of institutional investors is also reflected in a relatively low market share of banks in terms of financial sector credit and total assets (see table below).

With a 1995 stock market capitalization close to GDP, and a ratio of bank assets to GDP in line with neighboring countries, both the bank market and the stock market appear well developed in the Netherlands. The banking system is based on long-term, bank-client relationships through all-purpose branches of the large universal banks. As in most countries in continental Europe, the market for bonds issued by nonfinancial enterprises is not highly developed.2 Accordingly, credit to firms and households takes the form of loans rather than securities, with banks providing about three-fourths of the total, followed by pension funds and mortgage banks. The significant role of bonds, evident from Table 4.1, mainly concerns foreign bonds and bonds issued by the government and banks, and held by institutional investors and banks. Overall, this pattern puts the Netherlands between Germany—with banks having a larger role—on the one hand and the United Kingdom on the other.

Investments are mainly financed internally out of retained profits, explaining the limited demand on the capital market by firms. During 1991–93, internal financing accounted for 61 percent on average of total financing of nonfinancial firms.3

The payments system is characterized by the wide-spread use of credit transfers, direct debits, and, recently, electronic payments using debit and credit cards. In 1995, these means of payment accounted for 61 percent, 22 percent, and 13 percent, respectively, of the number of noncash transactions.4 This structure is similar to that in Belgium and Germany, but differs from the United Kingdom and France, where checks play a more prominent role. A bank project to introduce prepaid cards has been slow to take off, because of the incompatibility of two competing systems and the limited number of locations accepting the cards. For the near future, the main issue will be the introduction of the euro. At the beginning of 1999, the Amsterdam Exchanges switched to the euro for all transactions. At the same time, banks made payment facilities in euro available to the private sector. However, the standard payment facilities operated by banks will remain in guilders until the start of 2002, when euro notes and coins will be issued.

Indicators of Financial Sector Structure, 19931

(In percent)

article image
Sources: Borio (1995); Huizinga (1998); and White (1998).1 Credit in this table refers to credit to firms and households from domestic financial institutions plus any securities outstanding.2 Asset s of banks (not including insurance companies within the same group) as a percentage of assets of all financial institutions.3 In percent of total credit.4 In percent of GDP.
1 See Van Ewijk and Scholtens (1996) and de Bondt (1998).2Boot, Ligterink, and Schmeits (1997).3 Ibid, p. 9.4Denissen (1997).

Both institutional investors and households are diversifying their financial assets. After strict limitations on investments by public sector pension funds were lifted in the early 1990s, funds have gradually diversified their portfolios, shifting out of domestic loans into domestic and foreign bonds and shares. Insurance companies have made similar adjustments, and overall, the share of equity in institutional investors’ portfolios has increased from less than 15 percent in 1990 to about a third at the end of 1997.2 At the same time, households have shifted from savings accounts to investments in shares, either directly or through investment funds, attracted by low current interest rates, high stock market returns, and, possibly, also the improved functioning of the stock exchange. Investment funds and investment companies, which invest in both financial securities and real estate, became more important during the 1980s. As these investment products compete with bank savings accounts, banks have responded by also setting up their own, in-house, investment funds.

In recent years, a range of new investment products has been offered in the retail market, often supported by aggressive marketing approaches. Second mortgages and mortgage refinancing at a lower interest rate have, in part, been used to finance investments in equity, a strategy that inherently increases households’ financial risks. Banks have successfully marketed new mortgage types that include such investment schemes, exploiting the deductibility of mortgage interest and the absence of a capital gains tax.3 Investment companies offer various lease constructions of shares, and “click” funds that limit the downward price risk on share holdings.4

The Committee on Corporate Governance

In 1997, the Committee on Corporate Governance (“the Peters Committee”), set up by the Association of Securities Issuing Firms and the Amsterdam Stock Exchange, published a much debated report with 40 recommendations to improve corporate governance in the Netherlands, within the existing legal framework. The recommendations were discussed at the 1998 General Meetings of Shareholders. The goals of the initiative were to promote openness, accountability, and share-holder influence. A follow-up committee was formed to monitor implementation of the recommendations.

The committee did not seek a fundamental shift away from the current regime, in which independent company supervisors should respond not just to shareholders, but to all interests involved. Under the so-called structure regime, for large firms, there is a formal separation of management, by the Board of Directors, and supervision, by the Supervisory Board. Members of the Supervisory Board are nominated by the board itself, while the shareholders’ meeting and the workers council have a right the recommend or object to candidates. The Peters report advised that both boards should ensure that they have the confidence of the shareholders’ meeting and that Supervisory Board members should no longer be reappointed automatically.

As a general principle, the report favored proportionality between capital ownership and influence (“one share, one vote”). However, so far few firms have adjusted their strategy on this issue. Several anti-takeover arrangements often limit the rights of ordinary shareholders. About a third of all listed nonfinancial companies have issued shares to be held by a trust office. Investors can buy certificates of shares that carry dividend but have no or limited voting rights. Also, about 40 percent of listed nonfinancial companies make use of priority shares, while restricting the right attached to normal shares. The Peters report recommended that management should assess in what respect it would be desirable to increase shareholder influence and report its findings at the shareholders’ meeting. It also recommended that under normal circumstances (i.e., when there is no threat of a hostile takeover), holders of certificates should be allowed to vote by proxy.

In line with developments throughout the EU, the exchanges on which financial instruments are traded have modernized and merged their operations following the EU’s initiative to complete the internal market. The Amsterdam Stock Exchange (ASE) and the European Options Exchange (EOE) merged in early 1997. Before the merger, the ASE introduced a range of improvements in its trading systems for shares and bonds, to allay the shift, especially of institutional investors, to exchanges abroad. The Amsterdam Financial Futures Market (FTA) was established in 1987, with trade in futures on government bonds and a limited number of financial market indices. In 1997, share trade on the ASE amounted to $570 billion, making it the fourth largest in Europe, behind London, Frankfurt, and Paris. The EOE is one of the larger option markets in Europe, while the FTA has remained small in comparison with foreign competitors.

While the availability of risk-bearing capital has increased in the past few years, access to such capital is still considered problematic, especially for small firms. Historically, the price-earnings (P/E) ratio on the Amsterdam stock market has been rather low (at 9.6 on average during 1970–96), pointing to a high risk premium. However, the stock market has been more buoyant in recent years, which has induced a marked increase in equity financing by nonfinancial firms.5 As a further stimulus, a new stock exchange (NMAX) for small expanding firms was opened in Amsterdam in 1997. But, after one year only six firms were listed. Venture capital (project financing with above-normal risks) and informal investments complement the equity market in the supply of risk-bearing capital. In 1995, stock of venture capital amounted to 0.6 percent of GDP, which is much lower than in the United Kingdom (2.5 percent of GDP), in line with Belgium, and higher than in Germany (0.3 percent of GDP).6 Informal investments were estimated at approximately the same level.

Consolidation and Internationalization

Compared with other European countries, the degree of bank concentration is currently very high. The process of concentration started in the 1960s, and following a wave of mergers in the late 1980s and early 1990s, the three largest banks now account for between 70 percent and 80 percent of total bank assets, loans to the nonbank sector, and nonbank deposits (see Table 4.2 and Box 4.1). Cost savings have been put forward as a motive for these mergers. Empirical evidence shows no significant cost savings resulting from bank mergers, unless duplications in local bank branches can be eliminated.7 Indeed, by the end of 1995 the number of branches had been reduced by 25 percent since 1985, and by 15 percent since 1990, although the rapid spread of automated teller machines(ATMs) also contributed to this trend (Table 4.2). More important motives have probably been the establishment of a solid home market and a financial base for subsequent foreign expansion, anticipating increased cross-border competition due to the internal market and, eventually, EMU.8

Table 4.2.

Banking Sector Characteristics

article image
Sources: Prati and Schinasi (1997), McCauley and White (1997), Groeneveld and Swank (1998b), De Nederlandsche Bank (1998), and Bank for International Settlements (1991) and (1996).

Percentage share of the five largest banks in total assets.

Per 10,000 inhabitants.

Average pretax profits of major banks in 1989 and 1990, and in 1994 and 1995.

Average of the five largest banks, provided these are included in The Banker top 50 (1997).

The figure is for 1994.

The figure is for 1996.

After the legal separation of banking and insurance services was fully lifted in 1990, banks and insurance companies have been developing into financial conglomerates offering a wide range of financial services.9 Thus, they seek to exploit synergies in marketing and increased in-house placing power in arranging large transactions. Currently, the main bank and insurance groups are associating with the branch institutions responsible for administrating the social security system, which are to be fully privatized by 2000. The new combinations would be able to offer a complete set of employee benefits, including health, employment, and disability insurance and supplementary pensions.

A further development has been the sector’s vigorous internationalization in recent years. Overall, the main financial groups are well positioned for international expansion: they have established a secure home market base; they are large, even by international standards; and they are financially sound, enjoying a good reputation. The three major banks have internationalized using different approaches, in some cases with selectivity, but also with heavy recruitment in merchant banking. The Rabobank exploits its specific expertise, by focusing on financial services relating to trade in food and agricultural products. Overall, ABN-AMRO is the most foreign oriented of the main Dutch banks, with branches in more than 70 countries, and foreign assets accounting for about half of the total. The ING group has embarked on the most vigorous expansion. The group has specialized in merchant banking in emerging markets, and took over Barings Bank in 1995 and the Belgian bank BBL in 1997. However, in response to losses related to the Asian crisis in 1997 and 1998, ING-Barings announced its retreat from trade in financial derivatives and a reduction in its emerging market activities.

Financial Sector Competition

In most submarkets for financial services, competition is high, reflecting the large number of domestic and foreign, bank and nonbank competitors. Disinter-mediation, increased openness, and the strong growth of investment funds have contributed to competition. Nevertheless, in the retail market and in the corporate market for smaller and medium-sized enterprises, the degree of bank competition is often considered to be rather limited, mainly reflecting the high concentration of the banking sector and limited cross-border competition.10 In the past, there have been cases of collusion among the main banks. The funded pension system is also of some importance, because the large share of institutionalized savings has reduced the retail market for saving and investment products.11

The overall interest margin of Dutch banks is not high by international standards: 1.8 percent on average during 1990–94 (Table 4.3). This comparison provides no indication of an upward effect of the high bank concentration in the Netherlands on interest margins. A crude comparison of the interest margin on mortgages and savings accounts also does not suggest a higher degree of competition in neighboring countries (Table 4.4). Given sufficient interbank competition, the low spread may reflect stable macroeconomic conditions, and relatively low costs and taxes.12

Table 4.3.

Bank Earnings and Costs, 1990–94

(Average; in percent of total assets)

article image
Source: Groeneveld and Swank (1998b); and Drees and Pazarbasioglu (1998).
Table 4.4.

Average Interest Margin on Retail Products, September 1997

(In percent)

article image
Source: Van Roy (1997).

Available evidence suggests that Dutch companies do not face higher costs of debt financing than firms in neighboring countries, but reliable international comparisons of the cost of capital is scarce.13 A recent study found that the cost of debt through bond financing was relatively low in the Netherlands. However, only large, “low-risk” firms made use of the market, which may indicate serious access barriers.14

Challenges for Financial Supervision

Recent financial sector developments have raised new challenges for control system supervision, cross-border supervision, and functional supervision. The banking, insurance, and pension services industry has become more dynamic, with more and more complex ties among providers, and expanded activities. As is now widely recognized, these changes require adequate internal risk controls within financial institutions, as well as upgraded supervision. Consequently, the regulatory regime and supervisory practices have both been adjusted frequently.

The central bank, which supervises all credit institutions, has supplemented its traditional rules-based supervision, with monitoring of the quality of risk management within banks. The increasing complexity of bank operations and control systems has also made it more efficient to have specialized teams for the main banks. As part of a reorganization of the central bank’s Directorate for Banking Supervision in 1996 and 1997, designated supervisory teams have been set up for each of the four largest financial groups: ABN-AMRO, ING, Rabobank, and the Fortis group.

The increasing emphasis on supervising banks’ own risk-control systems has also led to new reporting rules. In line with the 1995 Basle Committee rules on solvency requirements for market risk, banks have been permitted to use their own in-house risk-assessment models to calculate their solvency requirements. Furthermore, in 1997, a new quarterly reporting system was introduced for both on- and off-balance-sheet risks, allowing banks to use their own risk-assessment methods. This was in response to the increasing use of derivatives, which had complicated the determination of interest risks. Also, in 1998 the central bank increased banks’ autonomy in determining the size of their provisions for country risk, as the previous rules-based system was considered overly complex.

The development of broad financial conglomerates complicates financial supervision. Potential problems include a heightened risk of conflicts of interest within the group—in particular, if the deal-buying side is dominant—and difficulties in controlling exposure on a groupwide basis. The control structure of a group could be inadequate or intransparent—and certainly very different from the legal structure.

There is no formal lead supervisor or direct super-vision addressing conglomerates of banks and insurance companies as a whole. A protocol between the central bank and the Insurance Board contains rules for their cooperation in supervising such groups. This structure is known as the solo-plus approach. Based on the protocol, supervision of the individual bank or insurance firm is supplemented by an evaluation of relevant aspects of the entire group. In 1998, the government announced strengthened requirements for the conglomerates for providing information on linkages within the group. The new rules also cover the recent ties of financial groups with the branch organizations that implement the social security system. During 1997 and 1998, when a number of cross-border mergers took place with Belgian institutions, formal “lead-supervisor” arrangements were concluded. It remains to be seen if a more formal approach to domestic supervision of groups is necessary. Currently, the central bank’s role in over-seeing systemic risks does provide a widely acknowledged anchor.

The 1994–98 economic upturn was associated with a sharp increase in credit to the private sector, in particular mortgage lending, which was partly explained by a relaxation of mortgage eligibility requirements (such as less stringent criteria for including partner income and for accepting collateral).15 The share of banks in the stock of mortgage lending increased from 69 percent in 1991 to 78 percent in 1997, reflecting a relatively active sales approach.16 In late 1997, the central bank publicly raised questions about the effect on bank soundness. Between 1991 and 1996, the average amount per mortgage increased by 10.7 percent a year, while house prices increased by 7 percent on average, increasing the average loan-to-value ratio. In addition, large increases in house prices that were partly triggered by the mortgage lending boom have raised concerns about the possibility of a downward price correction, which would further undermine the quality of the banks’ asset portfolio. Also, the degree of interest rate mismatching, while still considered as tolerable by the central bank, has worsened owing to the increase in mortgage lending.

The risks associated with banks’ internationalization strategy have again been highlighted by the recent Asian and Russian financial crisis. End-1997 claims on Asian countries, excluding Australia; New Zealand; Japan; Hong Kong, SAR; and Singapore was significant, amounting to 38 percent of the banks’ stated capital and reserves.17 Adding lending to Russia brings the figure to 42 percent. Dutch subsidiaries of Asian banks account for a large part of this exposure. Of note is that the Basle solvency ratios do not adequately reflect systemic risks in case of a skewed international diversification of bank assets. At the end of 1997, the central bank introduced a detailed weekly monitoring system of banks’ exposures.

The separation between pension products offered by pension funds and insurance companies has become less clear. The Ministry of Social Affairs and Employment has recently announced measures to prevent unfair competition by pension funds in the market for individual private pensions. Following a 1997 revision of the law, pension funds started offering a range of supplementary pension products, competing with insurance companies. However, pension funds are not subject to profits taxes and also benefit from privileged information through the extensive client database they derive from their protected function in providing pensions.18 To restore a level playing field, new regulations were announced to prohibit the funds from differentiating premiums among their customers, thus limiting their ability to exploit client knowledge. However, emerging linkages between pension funds and insurance companies complicate attempts to maintain a clear separation.19 Also, the ministry has expressed concerns about the ability, especially of smaller pension funds, to adequately control the risks associated with their current, more active investment strategy.

In reaction to the aggressive marketing of new investment products, the central bank issued a marketing directive for investment companies in early 1998. For consumer protection, the directive seeks to ban misleading information and stipulates that the risks inherent to investments have to be made clear. Also, in consultation with the Consumers’ Association, life-insurance companies have adopted a code of conduct with a similar purpose. However, not all investment products are covered by the new rules.

In recent years, the legal framework has been adjusted to reinforce the integrity of the financial system, and further measures have been announced (Box 4.3). Supervision of financial asset trading (both within and outside the organized exchanges) was transferred from a self-regulatory body to an independent supervisor (the Securities Board of the Netherlands) in 1997. Additional measures that have been announced include a registration system and the obligation to have a code of conduct for relevant staff in financial institutions. Also, enforcement will be enhanced through improved exchange of information among supervisors and legal enforcement authorities. To some extent, the proposed measures have been inspired by possible irregularities in the equity market, involving securities firms, and within several pension funds, that were discovered in 1997.

Financial Sector Supervision

Prudential supervision is in the hands of three different institutions. The central bank is responsible for prudential supervision of banks and other credit institutions. The Insurance Board is charged with the supervision of insurance companies and pension funds, and securities trade is subject to supervision by the Securities Board of the Netherlands. In addition, the Social Security Supervision Commission oversees the organizations that implement the social security system and that have recently linked up to the existing financial conglomerates.

The central bank and the Ministry of Finance are charged with supervising structural developments in financial markets, to ensure competition and to control the degree to which credit institutions are interwoven with other sectors. A number of prescribed actions, such as mergers, by or concerning credit institutions require a declaration of no objection. Approval depends on prudential considerations and the effects on market transparency and concentration. These rules give the authorities relatively strong powers in controlling the development of financial conglomerates. Based on a new competition law, enacted in 1998, the newly established Competition Authority will also judge financial sector mergers and participations, starting in 2000. However, the authority has already started looking into other agreements within the financial sector that may limit competition.

Bank solvency has been adequate and fairly stable. The risk-assets ratio of the main Dutch banks declined slightly in recent years, from 11.3 percent at the end of 1995, to 11.0 percent at the end of 1996, and 10.8 percent at the end of 1997. In addition, two tests of bank liquidity are conducted. In recent years, actual liquidity by far exceeded the required levels. On-site examinations by the central bank, including foreign branches and subsidiaries, are conducted in cooperation with local supervisors and focus on specific aspects of bank operations such as control systems and credit valuation.

The central bank is also responsible for supervising investment funds and investment companies and, since 1995, foreign exchange bureaus.

In many ways, the experience in the Dutch financial sector in the 1990s offers interesting insights into the challenges facing financial institutions, and their supervision, on the eve of EMU. Particularly striking are (1) the sequencing of domestic, and then international, consolidation, involving extensive links between banking and insurance groups; (2) the supervisory response to market change, which is doubtless still evolving for financial groups; and (3) the questions raised by asset market and credit developments at a time when cyclical conditions were out of phase with the anchor country for monetary policy—a theme that is pursued further in the final section of this paper.

1

See Hilbers (1998). The European Union’s 1989 Second Banking Directive, which allowed credit institutions to offer the same services anywhere in the union, has also been a major factor.

2

Pension funds have also become more active in exercising their rights as shareholders—a change in behavior linked to a wider effort to improve corporate governance (see Box 4.2).

3

Generally, interest paid on mortgages is fully tax deductible. However, the interest deduction on second mortgages used for purposes other than house improvements was capped in 1997. Also, imputed rental income from owner-occupied housing is added to taxable income, limiting the net tax advantage.

4

The abolishment of specific interest deductions on consumer loans, envisaged as part of a large tax revision to be completed by 2001, is likely to end the attractiveness of many popular financial instruments.

5

Equity financing during 1993–97 was more than five times higher than in the previous five-year period.

9

Such cross-sector mergers are still subject to a declaration of no objection, and banking and insurance activities must be organized in separate legal entities.

10

See Van Bergeijk, Van Gent, Haffner, and Kleijweg (1995), and Haffner and Waasdorp (1998). Swank (1995) estimated a model of financial sector behavior in the markets for mortgages and savings deposits during 1957–90 and found evidence of a significant degree of oligopolistic behavior. However, competition in the mortgage market had increased during the estimation period. A study commissioned by the European Commission (1997) indicated that since the implementation of the 1992 internal market program margins on loans and deposits in the EU countries had decreased moderately, including (except for mortgages) in the Netherlands. Also, cross-border trade in financial services had increased, except for retail services.

15

For about a third of all house purchases, a mortgage guarantee is provided. Since the establishment of the uniform National Mortgage Guarantee scheme in 1995, mortgage takers pay a one-time premium for entering the scheme. In return, mortgage providers charge a lower interest rate, as the government backed scheme would pay back the loan in case of default.

17

Consolidated claims of BIS reporting banks on Asia. Claims on Indonesia, the largest borrower, amounted to more than 6 percent of capital and reserves.

19

Many large pension funds have an insurance firm as a subsidiary, and some pension funds have become part of a larger financial group.

Transforming a Market Economy
  • Bakker, Bas B., 1993, Saving in the Netherlands: Sources, Trends, and Mobility (Groningen: Wolters Noord-hoff).

  • Bakker, Bas B., 1996, Annual Report (Basle).

  • Baljé, S., 1997, “Regulatory Reform in the Telecommunications Sector,” in Regulatory Reform in the Netherlands, ed. by R.G.C. Haffner, P.A.G. van Bergeijk, (The Hague: Ministry of Economic Affairs).

    • Search Google Scholar
    • Export Citation
  • Bank for International Settlements 1991, Annual Report (Basle).

  • Bayoumi, Tamim, 1992, “The Effect of the ERM on Participating Economies,Staff Papers, International Monetary Fund, Vol. 39 (June), pp. 33056.

    • Search Google Scholar
    • Export Citation
  • Bayoumi, Tamim, and B. Eichengreen, 1997, “Ever Closer to Heaven? An Optimum-Currency-Area Index for European Countries,European Economic Review, Vol. 41 (April), pp.76170.

    • Search Google Scholar
    • Export Citation
  • Bayoumi, Tamim, and B. Eichengreen, 1992, “Shocking Aspects of European Monetary Unification,” in Adjustment and Growth in the European Monetary Union, ed. by F. Torres, Giavazzi, F. (Cambridge: Cambridge University Press).

    • Search Google Scholar
    • Export Citation
  • Bayoumi, Tamim, and B. Eichengreen, and Eswar Prasad, 1995, “Currency Unions, Economic Fluctuations, and Adjustment: Some Empirical Evidence,Centre for Economic Policy Research, Discussion Paper No. 1172 (February).

    • Search Google Scholar
    • Export Citation
  • Blanchard, O.J., and D. Quah, 1989The Dynamic Effects of Aggregate Demand and Supply Disturbances,American Economic Review, Vol. 79, pp. 65573.

    • Search Google Scholar
    • Export Citation
  • Bofinger, Peter, 1994, “Is Europe an Optimum Currency Area?Centre for Economic Policy Research, Discussion Paper No. 915 (February).

    • Search Google Scholar
    • Export Citation
  • Bolt, W., and M. Peeters, 1997, “Corporate Governance in the Netherlands,” Nederlandsche Bank, Reprint Series, No. 538,pp. 89110.

    • Search Google Scholar
    • Export Citation
  • Boot, W.A., J. Ligterink, and A. Schmeits, 1997, “De Kosten van Vreemd Vermogen in Internationaal Perspectief,” a study commissioned by the Ministry of Foreign Affairs (Amsterdam: University of Amsterdam, May).

    • Search Google Scholar
    • Export Citation
  • Borio, C.E.V., 1995, “The Structure of Credit to the Non-government Sector and the Transmission Mechanism of Monetary Policy: A Cross-Country Comparison,Bank for International Settlements, Working Paper No. 24 (Basle).

    • Search Google Scholar
    • Export Citation
  • Brouwer, H.J., and J.J.M. Kremers, 1993, “Uitdagingen voor het Budgettair Beleid,” in Inspelen op Europa: Uitdagingen voor het Financieel Economisch Beleid in Nederland, ed. by J.J.M., Kremers, (Schoonhoven: Academic Service).

    • Search Google Scholar
    • Export Citation
  • Capel, J.J., and A. Houben, 1998, “Asset Inflation in the Netherlands,” De Nederlandse Bank, MEB Serie No. 2 (February).

  • Central Planning Bureau, 1991, De Werkgelegenheid in de jaren tachtig, Werkdocument No. 41 (The Hague).

  • Central Planning Bureau, 1992, FKSEC: A Macroeconometric Model for the Netherlands (Leiden/Antwerpen: Stenfert Kroese Uitgevers).

  • Central Planning Bureau, 1997, Macro Economische Verkenning 1998 (The Hague).

  • Central Planning Bureau, 1998, Macro Economische Verkenning 1999 (The Hague).

  • de Bondt, Gabe J., 1998, “Financial Structure and Stylized Facts for Six EU Countries,De Economist, Vol. 146, No. 2, pp. 271301.

    • Search Google Scholar
    • Export Citation
  • de Grauwe, P., 1997, The Economics of Monetary Integration (Oxford: Oxford University Press, 3d ed.).

  • de Grauwe, P., and Wim Vanhaverbeke, 1990, “Exchange Rate Experiences of Small EMS Countries, in Choosing an Exchange Rate Regime: The Challenge for Smaller Industrial Countries, ed. by Victor Argy and Paul de Grauwe (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • de Haan, L., 1994, “Corporate Dividend Policy Under Asymmetric Information: An Empirical Study for the Netherlands,” De Nederlandsche Bank, MEB Series No. 3.

    • Search Google Scholar
    • Export Citation
  • de Kam, C.A., 1998, “Belastingen: stelsels, economische gevolgen en herziening,” in Belastingherziening in het fin de siàcle, Preadviezen van de Koninklijke Vereniging voor de Staatshuishoudkunde, ed. by H.P. Huizinga, (Utrecht: Uitgevery Lemma BV).

    • Search Google Scholar
    • Export Citation
  • Den Dunnen, E., 1985, Instruments of Money Market and Foreign Exchange Market Policy in the Netherlands, Monetary Monographs No. 3 (Dordrecht: De Nederlandsche Bank N.V./ Martinus Nijhoff Publishers).

    • Search Google Scholar
    • Export Citation
  • De Nederlandsche Bank 1998, Annual Report 1997 (Amsterdam).

  • den Hartog, H., and H.S. Tjan, 1974, Investeringen, Lonen, Prijzen en Arbeidsplaatsen, Central Planning Bureau Occasional Paper No. 2 (The Hague).

    • Search Google Scholar
    • Export Citation
  • Denissen, J.A. Th. 1997, “NBC Nadert Voltooiing,” Bank en Effectenbedrijf (July/August), pp. 69.

  • Draper, D.A.G., and A.J.G. Manders, 1997, “Structural Changes in the Demand for Labor,De Economist, Vol. 145, No. 4, pp. 52146.

    • Search Google Scholar
    • Export Citation
  • Drees, B., and C. Pazarbaşioğlu, 1998, The Nordic Banking Crisis: Pitfalls in Financial Liberalization? IMF Occasional Paper No. 161 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Eichengreen, B., 1990, “Is Europe an Optimum Currency Area?Centre for Economic Policy Research, Discussion Paper No. 478 (November).

    • Search Google Scholar
    • Export Citation
  • Englander, A. Steven, and Thomas Egebo, 1992, “Adjustment Under Fixed Exchange Rates: Application to the European Monetary Union,OECD Economic Studies, Vol. 117, No. 20, pp. 185.

    • Search Google Scholar
    • Export Citation
  • European Commission, 1990, One Market, One Money, European Economy No. 44, Annex B, “Germany and the Netherlands: The Case of a de Facto Monetary Union” (Luxembourg).

    • Search Google Scholar
    • Export Citation
  • European Commission, 1997, The Single Market Review: The Impact on Services: Credit Insitutions and Banking (Luxembourg).

  • Formby, John P., Stefan C. Norrbin, and Ryoichi Sakano, 1992, “The Synchronization of Business Cycles Across the European Community,Open Economies Review, Vol. 3, No. 3, pp. 23353.

    • Search Google Scholar
    • Export Citation
  • Freeman, Richard B., 1995, “Are Your Wages Set in Beijing?Journal of Economic Perspectives, Vol. 9, No. 3, pp. 1532.

  • Groeneveld, J.M., 1997, “Een Hypotheek op de Toekomst,Economisch Statistische Berichten, Vol. 82, No. 4121, pp. 72426.

  • Groeneveld, J.M., and J. Swank, 1998a, “De Fusiekoorts in het Bankwezen,Economisch Statistische Berichten, Vol. 83, No. 4143, pp. 20408.

    • Search Google Scholar
    • Export Citation
  • Groeneveld, J.M., and J. Swank, , 1998b, “Fusies in de Bankensector,Economisch Statistische Berichten, Vol. 83, No. 4150, pp. 36162.

    • Search Google Scholar
    • Export Citation
  • Haffner, R.G.C., and P.A.G. van Bergeijk, eds., 1997, Regulatory Reform in the Netherlands (The Hague: Ministry of Economic Affairs).

  • Haffner, R.G.C., and P.A.G. van Bergeijk, and P.M. Waasdorp, 1998, “De Kapitaalmarkt als Concurrentie-indicator,Economisch Statistische Berichten, Vol. 83 No. 4151, pp. 37779.

    • Search Google Scholar
    • Export Citation
  • Hilbers, P., 1998, “Financial Sector Reform and Monetary Policy Reform in the Netherlands,IMF Working Paper 98/19 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Hoogduin, L.H., and G.H. Huisman, 1998, “The Financial Structure in the Netherlands and Germany: Different, Harmonious, and On the Move,” in The Dutch and German Economies: Who Follows Whom? ed. by Lei Delsen, and Eelke de Jong, (New York: Physica-Verlag), pp. 12736.

    • Search Google Scholar
    • Export Citation
  • Huizinga, H.P., 1998, “Zijn Nederlandse Banken Efficient?Economisch Statistische Berichten, No. 4143, pp. 20811.

  • Huygen, A.E.H., and J.J.M. Theeuwes, 1997, “Electriciteit wordt Duur Betaald,Economisch Statistische Berichten, Vol. 82, pp. 848.

    • Search Google Scholar
    • Export Citation
  • Koedijk, K., and J.J.M. Kremers, 1996, “Market Opening, Regulation, and Growth in Europe,Economic Policy, Vol. 23 (October), pp. 44567.

    • Search Google Scholar
    • Export Citation
  • Kremers, J.J.M., and J.D. Flikweert, 1998, “Oudedagsvoorzieningen Tussen Keuze en Collectief,Economisch Statistische Berichten, No. 4152, pp. 39297.

    • Search Google Scholar
    • Export Citation
  • Krugman, P. 1991, Geography and Trade (Cambridge, Massachusetts: MIT Press).

  • Kusters, Arnold, Minne, Bert, Jansen, Cees, Noordman Herman, and Ben Geurts, 1996, “The International Investment Position of the Netherlands,” CPB Report 1996/3(The Hague: Central Planning Bureau), pp. 2127.

    • Search Google Scholar
    • Export Citation
  • McCauley, R.N., and W.R. White, 1997, “The Euro and European Financial Markets,” in EMU and the International Monetary System, ed. by P.R. Masson, T.H. Krueger, and B.G. Turtelboom, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • McKinnon, R.I., 1963, “Optimum Currency Areas,American Economic Review, Vol. 53 (September), pp. 71725.

  • McKinsey Global Institute 1997, Boosting Dutch Economic Performance (Amsterdam: McKinsey and Company).

  • Ministry of Economic Affairs 1997, 1997 Benchmarking the Netherlands (The Hague).

  • Ministry of Social Affairs Sociale Nota (The Hague, various issues).

  • Molle, W.T.M., and C. Th. Zandvliet, 1993, “Migratie en Europese Integratie,” in Inspelen op Europa: Uitdagingen voor het Financieel Economisch Beleid in Nederland, ed. by J.J.M. Kremers (Schoonhoven: Academic Service).

    • Search Google Scholar
    • Export Citation
  • Moons, A.C. and O.J.C. Cornielje, 1993, “Loonmatiging en Overlegeconomie,Economisch Statistische Berichten, Vol. 78, No. 3934, October 27, p. 993.

    • Search Google Scholar
    • Export Citation
  • OECD Employment Outlook, various issues.

  • Oudshoorn, C., 1993a, “Marktwerking in het Sociaal-Economisch Bestel,Economisch Statistische Berichten, Vol. 78, No. 3931, October 6, pp. 90813.

    • Search Google Scholar
    • Export Citation
  • Oudshoorn, C., , 1993b, “Naschrift,Economisch Statistische Berichten, Vol. 78, No. 3934, October 27, pp. 99495.

  • Prati, A., and G.J. Schinasi, and 1997, “European Monetary Union and International Capital Markets: Structural Implications and Risks,” in EMU and the International Monetary System, ed. by P.R. Masson, T.H. Krueger, and B.G. Turtelboom, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Ramaswamy, Ramanu, and Torsten Sloek, 1997, “The Real Effects of Monetary Policy in the European Union: What Are the Differences?IMF Working Paper 97/160 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Salverda, Wiemer, 1998, “Incidence and Evolution of Low-Wage Employment in the Netherlands and the United States, 1979–1989,” in Low-Wage Employment in Europe, ed. by Stephen Bazen, Mary Gregory, Wiemer Salverda, (Northampton, Massachusetts: Edward Elgar).

    • Search Google Scholar
    • Export Citation
  • Scholtens, L.J.R., and D.M.N. van Wensveen, 1998, “Fusies Zonder Koorts,Economisch Statistische Berichten, Vol. 83, No. 4150, pp. 36061.

    • Search Google Scholar
    • Export Citation
  • Soskice, D., B. Hancké, G. Trumbull, and Wren, A. 1997, “Wage Bargaining, Labour Markets, and Macroeconomic Performance in Germany and the Netherlands,” in The German and Dutch Economies: Who Follows Whom! ed. by Lei Delsen, and Eelke de Jong, (New York: Physica-Verlag).

    • Search Google Scholar
    • Export Citation
  • Studiegroep Begrotingsruimte 1997, Tiende rapport Studiegroe Begrotingsruimte (The Hague).

  • Swank, Job, 1996, “How Stable Is the Multiproduct Translog Cost Function? Evidence from the Dutch Banking Industry,Kredit und Kapital, Vol. 29, No. 1, pp. 15371.

    • Search Google Scholar
    • Export Citation
  • Swank, Job, 1995, “Oligopoly in Loan and Deposit Markets: An Econometric Application to the Netherlands,De Economist, Vol. 143, No. 3, pp. 35366.

    • Search Google Scholar
    • Export Citation
  • Szász, A., 1981, “Het Wisselkoersdebat,” in Zoeklicht op Beleid, ed. by Emile Den Dunnen, M.M.G. Fuse, and G.A. Kessler, (Leiden: Stenfert Kroese).

    • Search Google Scholar
    • Export Citation
  • U.S. Department of Commerce 1995, Survey of Current Business, August, pp. 53114.

  • Van Ark, B., J. de Haan, and H.J. de Jong, 1996, “Characteristics of Economic Growth in the Netherlands During the Post-War Period,” in Economic Growth in Europe Since 1945, ed. by N. Crafts, G. Toniolo, (Cambridge: Cambridge University Press), pp. 290328.

    • Search Google Scholar
    • Export Citation
  • Van Bergeijk, P., C. Van Gent, R.C.G. Haffner, and A.J.M. Kleijweg, 1995, “Mobiliteit en Concurrentie op de Kapitaalmarkt,Economisch Statistische Berichten, Vol. 80, No 4023, pp. 78084.

    • Search Google Scholar
    • Export Citation
  • Van de Meerendonk, A., 1997, “Benchmarking the German and Dutch Welfare States,” in The German and Dutch Economies: Who Follows Whom? ed. by Lei Delsen and Eelke de Jong, (New York: Physica-Verlag).

    • Search Google Scholar
    • Export Citation
  • Van Ewijk, C., and L.J.R. Scholtens, 1996, Geld, Financiële Markten, and Financiële Instellingen (Groningen: Wolters Noordhoff).

  • Van Roy, T., 1997, “Belgian Banks in the European Context,Revue de la Banque, Vol. 61 (December) pp. 691702.

  • Vaubel, R., 1978, “Real Exchange Rate Changes in the European Community,Journal of International Economics, Vol. 9 (May), pp. 31939.

    • Search Google Scholar
    • Export Citation
  • Visser, Jelle, and Anton Hemerijck, 1998, “Een Nederlands Mirakel” (A Dutch Miracle) (The Hague: Amsterdam University Press).

  • Von Hagen, J., and M.J.M. Neumann, 1994, “Real Exchange Rates Within and Between Currency Areas: How Far Away Is EMU?Review of Economics and Statistics, Vol. 76 (May), pp. 2364.

    • Search Google Scholar
    • Export Citation
  • Wellink, Nout, 1994, “The Economic and Monetary Relation Between Germany and the Netherlands,” in Monetary Stability Through International Cooperation: Essays in Honour of Andre Szasz, ed. by A. Bakker, H. Boot, O. Sleijpen, and W. Vanthoor, (Dordrecht/Boston: Kluwer Academic Publishers).

    • Search Google Scholar
    • Export Citation
  • White, W.R., 1998, “The Coming Transformation of the Continental European Banking System,BIS Working Papers, No. 54, June.