Naar een dienstbaar en stabiel bankwezen

1. Naar een dienstbaar en stabiel bankwezen Age Lindenbergh Duisenberg School of Finance, Amsterdam 4 July 2013

2. Introduction • Overall impression of report is good … • Clear and well structured report • Sound proposals • No major surprises • … although we have some specific points of attention … • Trust • Structural reform of the sector (stability / capital ratios & bail-in / separation of banking operations) • Future role of the banking sector • Stability vs Growth … and some questions remain

3. Trust • In line withoutcome of recent KPMG report on trust in the banking sector: • Semi-annualsurvey: 500 private individuals • Keyoutcomes • 20% of clientssee trust in their bank reduce • 25% of clientsconsiders move to another bank (savingsorinvestment account) • >50% sees management havingpositivecontribution to bank image • Keyreasonsforreduced level of trust: “simplify / back to core / clientcentricity” • Disruptions in paymentsystems • Complexity of bank products • Bonuses • Communicationwith the bank

4. Stability • Likelihood of a bank to fail is determined by (H. Rijken): • Profit-generating capacity (to replenish depleted capital positions) • Asset quality (level of non-performing loans) • Bank capital (in particular to fend off ST collapses) • Therefore three questions • Impact of proposed transfer of mortgage portfolios on stability of the sector? • Profitability • Collateral (also in connnection with banking union) • Improvements to credit risk management? • When will 80% LTV measure be implemented? What about DTI levels? Type and timing of implementationof measures is critical to createstability

5. Bail-in • Right steps but …. • Good news: Commission requires specific bail-inable instruments and European level playing field: limits potential impact on NL banks’ funding costs • Loss of implicit guarantee has already been factored in by markets • … some questions remain • How are midsized and lesser capitalised banks to raise bail-in? • What will be the required level of bail-in? • What type of instrument will be used for bail-inable debt? (LT vs ST) • Also bail-inable debt at a subsidiary level? • How to increase visibility on the conditions under which bail in takes place? • When will bail-in be implemented (in 2018)? Why wait (different from UK)? Bail-in concept to further crystalise in the coming months

6. Structure • UK puts in a stronger “electrified” fence: should we not do the same? • Separate legalstructures and capitalrequirementswithinone Group (and limitedintragroupexposures) • By September 2013: beable to isolatean issue in a matter of days • Liikanen does notreally affect NL: is it a missedchance? • No large I-banks • But: is “nomarketmaking” feasiblefor State debt sponsoring banks? • What does the SNS situationtellus? • SNS’s issues arose in the PropertyFinancedivision, • These issues couldbestemmed to someextentby the profits generatedby the Retail banking activities, bank was nationalised Diversification benefit of major importance with re to ringfencing: quantified?

7. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1994 1997 2000 2003 2006 2009 2012 Bank financing Alternative debt financing Future role of the banking sector – Does it stay the same? How the role of the banking sector mayevolve De “centrale functie [van banken] is het kanaliseren van partijen die een overschot aan middelen hebben, naar partijen die middelen nodig hebben om te investeren” (p.17) NSFR puts pressureonbanks to reducetheirexposure to LT funding of the economy. Thereforethisrolemayneed to be taken onbyotherinstitutions Development of capital market for debt funding in the US Relativeposition of NL in 2013 Source: S&P LCD 7

8. Stability vs Growth • Clarity on status • Are we done now? (after Tarullo’s comments and FPC’s wish to up lev ratio) • Future profile of banking sector • Sector to be “multi-faceted” and “open to newcomers” (how implemented?) • What should LT profitability be of a bank? (vision) • Bank as engine for growth • Impact assessment: stability vs growth? (limit strengthening capital position through reduced lending) • How far should a bank go in supporting international expansion of NL corporates? (self funding of foreign operations)

9. Maximum LTV on new loans Source: IMF, 2011, Housing finance and financial stability, GFSR