Out of the Shadows of the Banking System

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 Financiële 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).

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.

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.