ACM makes recommendations for improving competition in the banking sector

Reduce and simplify banking regulations. Evaluate the licensing scheme for banks and make it easier for consumers to switch. These are some of the nine recommendations that the Netherlands Authority for Consumers & Markets (ACM) has made to the Dutch Minister of Finance and to the Dutch government in its study into barriers to entry in the Dutch banking sector. New market entrants, or the threat of their entry, improve the competition level in this sector. That is especially important as competition among banks has slowed down since the financial crisis. More competition leads to lower prices, better services, and more choices for businesses and consumers.

Make regulations and oversight simpler and more specific

Regulations and oversight in the banking sector are largely the same for all banks – large or small. Yet, the bankruptcy of a small bank causes less harm to the economy than the bankruptcy of a large bank would. New entrants are thus imposed an unnecessarily heavy burden.  Recent initiatives by the Dutch central bank (DNB), where the potential damage is taken into account more, are a step in the right direction. Henk Don, Member of the Board of ACM, explains: “We are in favour of more tailor-made regulation and oversight. Initiatives such as credit unions cannot get off the ground because they have to conform to disproportionately strict rules.”

Banking regulations have become vast and complex. This makes it less attractive for new banks to enter the market. Therefore, ACM advises to reduce or simplify existing rules where possible. Moreover, several parties in the banking sector indicate that the uncertainty during the licensing process and the unforthcoming attitude of DNB have made them cautious about filing a license application. ACM does not comment on the accuracy of such statements, but it does emphasize that new entrants’ expectations in themselves potentially form a barrier to start a bank. ACM takes these indications seriously, and therefore advises that DNB’s licensing scheme be evaluated.

Create clarity about mortgage rules, and stimulate switching

Uncertainty about future mortgage rules in the Netherlands can lead to banks postponing their decision to become active in the country. ACM advises the Dutch government to reduce this uncertainty to a minimum.

Consumers rarely switch banks for their current accounts (or checking accounts) or savings accounts. This makes it difficult for new entrants to attract new customers. That is why ACM makes a number of concrete recommendations so that more consumers will switch, such as improving and promoting the switching service for current accounts (or checking accounts).

No barriers to movement of capital

ACM believes it is desirable to restore the completely free movement of capital within Europe. That way, foreign deposits can be used by banks to finance loans in the Netherlands. National regulators have limited this movement of capital after the crisis. That was because the costs of previous bankruptcies of banks that operate in more countries were borne by the government in the country of residence. ACM is in favor of introducing a European deposit guarantee scheme, and of improving the European rules that enable unhealthy banks to go bankrupt without causing damage to the economy. With these measures, national regulators no longer need to maintain the restrictions on the movement of capital. If these rules work effectively, they will also ensure that large banks lose their unfair competitive advantage, because they do not need to be saved by the governments any longer.

Entry to the banking sector is one of the six themes on the 2014-2015 ACM Agenda.