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Out of the Shadows of the Banking System


Publication Number: 2013-31
Authors: M. Kerste, B. Baarsma, J. Weda, N. Rosenboom, W. Rougoor, P. Risseeuw
Commissioned by: Holland Financial Centre
Published by: SEO Economic Research
ISBN: 978-90-6733-702-1

One part of the financial system comprises institutions that people are familiar with – banks, insurance companies and pension funds. The other part of the system comprises other financial institutions (OFIs). Partly because of their unfamiliarity, this sector mainly arouses suspicion among the public at large and politicians. The aim of this survey is to improve familiarity with other financial institutions by (1) giving a qualitative description of the activities that these institutions engage in and (2) providing quantitative information as far as possible on how much money, how many entities and how many jobs are involved and what contribution OFIs make to the real economy.

The analysis of OFIs is in two parts: bijzondere financiele instellingen (literally ‘special financial institutions’, SFIs, but closely resembling Special Purpose Entities, SPEs, as defined by the OECD) and shadow banking (credit facilities provided by the non-banking sector).

The main information that the survey has yielded on SFIs is as follows:

  • Dividend, interest and royalty streams in the Netherlands in 2010 totalled approximately 153 billion euros (incoming) and 125 billion euros (outgoing). Of these about 65% was accounted for by dividends, 25% by interest and 10% by royalties.
  • These streams are relatively highly concentrated, with the ten biggest SFI clusters together accounting for some 50% of the streams.
  • The extent to which there are indications of ‘little or no tax being paid’ depends on the perspective.
  • If we apply the Dutch yardstick for excessively low tax there are indications of ‘little or no tax being paid’ in the case of about 5% of the relevant streams.
  • If we apply broader standards those indications are multiplied, up to 40% of the relevant revenue.
  • Developing countries’ share of the total relevant streams is approximately 2.5%.
  • SFIs contribute 3-3.4 billion euros a year to the Dutch economy in the form of taxes, wage costs and bought-in services.
  • SFIs provide about 8,800-13,000 FTEs of employment (direct and indirect).

 

The main information that the survey has yielded on shadow banking is as follows:

  • The balance sheet total of shadow banking in the Netherlands is not 3 trillion (3,160 billion) euros as stated in some publications but just under 1,500 billion.
  • Whereas past calculations have assumed that all SFIs are part of the shadow banking system, in fact this is only true of financial SFIs, i.e. SFIs affiliated with a financial group.
  • Based on various risk indicators only finance companies are in the ‘high risk’ category, hence only a small proportion of the shadow banking system is in the highest risk category (9%). Together the ‘medium to high risk’ categories cover just under 25% of the shadow banking system.
  • Most shadow banking in the Netherlands is subject to indirect or remote supervision.

Category: 2013, Nicole Rosenboom, Ward Rougoor