In the middle of the press conference of the Dutch Banking Association (NVB), it is announced that the bank tax, which a majority of the House of Representatives wants, will increase less rapidly than was intended two weeks ago. Instead of 350 million euros, it must yield 150 million. “The gesture is appreciated,” says NVB chairman Medy van der Laan. ‘But it remains fundamentally wrong. Every euro of extra bank tax is one too many.’
“Of course we can pay that amount,” adds Bas Brouwers, financial director of Rabobank, “but that is not the point.” So what’s the point? ING CEO Steven van Rijswijk: ‘This is a fundamentally incorrect instrument to reduce the budget deficit. Passing that budget problem on to a few companies is a bad idea.’
About the author
Daan Ballegeer is an economics reporter for de Volkskrant. He writes about financial markets and central banks, among other things.
The fact that the banks feel unfairly treated is noticeable even before the start of the conversation with the press. There is an A4 sheet on the tables with the heading ‘Significance of banks for customers and society’, followed by a list of figures, including those for profit tax and the existing bank tax over the past three years: 3.8 and 3.8 respectively. 1.4 billion euros. “The hard figures show that we are already making our share,” says Van der Laan.
High profit
The reason for the new tax plans is the high profits of financial institutions. The major banks recorded a profit in the first half of the year that was more than twice as high as in the same period last year. This is mainly due to the interest rate policy of the European Central Bank. The interest that banks charge for new loans is much higher than what they pay out to their savers in compensation. According to a calculation by De Nederlandsche Bank, the so-called interest margin is now 1.4 percent, the highest level in at least fifteen years.
Critics say this results in excess profits for the banks. “Healthy profit after many bad years,” says Van der Laan, supported by Brouwers. ‘In absolute amounts, banks make a lot of profit, that’s just true. But you have to relate that to our size. If you compare the return on equity with that of the AEX companies, you will see that the banks are dangling at the bottom. In recent years, Dutch banks have been well below the 10 percent return, the level that a healthy sector needs according to regulators. Now we’re about there again.’
A higher bank tax causes much more damage in the long term than it produces in the short term, the bankers believe. It could, among other things, lead to credit rating agencies lowering their assessment of the health of Dutch banks, says Van Rijswijk. This would mean that the financing costs of those banks would increase, which would harm their international competitive position. In addition, it may mean that consumers have to pay higher costs for banking services.
Danger of mergers
The business climate would also deteriorate. ‘Suppose a Dutch bank merges with a bank abroad,’ says Brouwers. ‘If you have to pay a much higher bank tax here, where do you think the new head office will be located? Then you are talking about a fairly rational choice. That is a great danger.’
The banks still have a long way to go to convince policymakers of this message, Van der Laan acknowledges. ‘Our job is to tell the real truth. I understand very well that not everyone in the House of Representatives has the complete overview of all the consequences. We want to help change that.’
There is also still some way to go to convince the rest of society. The banks and their customers sometimes seem to be in a different world, Brouwers acknowledges. ‘I do have some frustration that it is sometimes not possible to build that bridge, even though I have the feeling that we are doing a lot for it.’
For example, he understands ‘very well’ why the savings interest rate is not higher. ‘But it is quite difficult to explain this in one sentence (a rising policy rate limits banks from fully passing on savings interest rates, because they have older loans at lower interest rates, while on the expenditure side they have to pay higher savings interest rates on all deposits, ed.).’
“It is clear that we are doing something wrong,” says Van Rijswijk. ‘We can talk all we want, but as long as there is social dissatisfaction about how the banks behave, we still have work to do with better communication.’