Nout Wellink: 50th anniversary of the Dutch Act on the Supervision of Credit
Systems
Opening remarks by Mr Nout Wellink, President of De Nederlandsche Bank and President of the Bank
for International Settlements, at the conference on the occasion of the 50th anniversary of the Dutch
Act on the Supervision of Credit Systems, Amsterdam, 24 April 2002.
* * *
It is a great privilege to welcome you here in Amsterdam at the conference 'Banking Supervision at the
Crossroads'. This conference has been organised to celebrate the adoption of the Act on the
Supervision of the Credit System in the Netherlands 50 years ago. That was when banking
supervision in our country was first formalised. It replaced a system of voluntary arrangements
between De Nederlandsche Bank and the private banks. In my opening remarks today, I will look back
at the past half century, that has taken us from informal gentlemen's agreements to the phenomenal
complexity of Basel II. We still aim for agreement and most of the time try to behave like gentlemen,
but the world has become a different place. And it will continue to change rapidly! The question we are
faced with is how supervisory practices should respond and in particular - and that is the theme of the
conference - to what extent they should converge.
I am very happy that we have a number of prominent speakers that are willing to shed light on this
important question. First of all, I must inform the audience that due to unforeseen obligations in
Parliament, Minister Gerrit Zalm will unfortunately not be able to join us this afternoon. However we
are happy that in his place Mr Kees van Dijkhuizen is willing to deliver the keynote speech this
afternoon. As the highest civil servant at the Ministry of Finance, Mr. van Dijkhuizen takes a keen
interest in financial supervision in this country.
We furthermore are very honoured to have in our midst Mr William McDonough, President of the
Federal Reserve Bank of New York and chairman and of the Basel Committee on Banking
Supervision, Mr Jochen Sanio, Chairman of the new Federal Office for the Supervision of Financial
Services in Germany and Mr Tom de Swaan, Chief Financial Officer of ABN AMRO.
As mentioned, the Dutch Act on the Supervision of Credit Systems formalised the supervisory task of
De Nederlandsche Bank. It was a response to the major changes in the financial and economic
environment that took place between the two World Wars. The banking crises of the nineteen
twenties, the Glass Steagall Act in the United States, the growing role of the banking sector in the
economy: they all made it clear that a sound functioning of the banking system was too important to be
arranged informally. In this respect it is noteworthy that supervision on the insurance sector was
formalised even further back in time and exists almost 80 years now. But, of course, in the decades
that have passed since then the financial environment has kept on changing, and with it the
challenges that supervisors face. Two trends have been particularly prominent in the past decades.
The first is the enormous increase in cross-border activities made possible by the liberalisation of
capital markets. The second is the blurring of the borderlines between banking, insurance and
securities activities. These fundamental developments are the driving force behind the increasing need
for convergence of supervisory practices across borders and sectors.
Let me illustrate by looking at our experiences in the Netherlands. The international dimension of our
major financial institutions has increased dramatically. As a result, in some cases nowadays more than
half of assets and profits are related to activities in foreign countries. There are no signs that the
internationalisation of the financial industry will slow down, rather on the contrary. In a world where
national financial systems and institutions are increasingly dependent upon one another, it is obviously
crucial for financial stability that high and comparable supervisory standards are maintained
everywhere.
This has long been recognised in the field of banking regulation. Indeed, it was reflected in the
establishment and the work of the Basel Committee, as well as in the work of the European
committees in this field. In this context I would like to express my great respect for the leadership
shown by Bill McDonough in steering the ship 'Basel II' through stormy seas to a save haven. This
difficult task could not be in better hands than those of a former US Navy officer! Importantly, as part of
Basel II, there is wide recognition that besides having convergence in regulation, it is equally important
that supervisory practices (the implementation of the rules!) converge. The creation of the Accord
Implementation Group by the Basel Committee, and the work being done by the Groupe de Contact in
Europe reflect this understanding.
It is important to keep in mind that the importance of cross-border convergence is not confined to the
banking industry. It equally applies to other parts of the financial sector, such as insurance. This brings
me to the other main trend that I mentioned, i.e., the blurring of the borderlines between banking,
insurance and securities activities.
Here too, the development in this country is a case in point. We have been frontrunners when it comes
to financial conglomerates or bank assurance, institutions that combine banking, insurance and
securities activities. As is well known, the Netherlands houses a couple of world's major internationally
active financial institutions. Most of the major Dutch banks currently combine banking, insurance and
securities activities. The emergence of these conglomerates was made possible by the lifting, in 1990,
of the prohibition on combining banking and insurance activities in one financial institution.
As the importance of cross sectoral financial activity increases, so does the need of the supervisory
response. The main challenge in this field is to achieve a consistent approach in the supervision at the
group level as well as at the level of the entities within the conglomerate. Consistency does not imply
that the approaches should be identical. It should be interpreted as avoiding the potential for
regulatory arbitrage as well as regulatory overlap.
Again, we try to take the lead in the way we organise supervision in the Netherlands. Co-operation
between bank and insurance supervisors dates back to the early nineties and has performed well.
Nevertheless in anticipation of a continuation of the trend that I have described, we have come to the
conclusion that a cross sectoral approach to supervision is the right way forward. In this approach we
make a clear distinction between prudential and conduct of business supervision. It assigns the
responsibility for these inherently different objectives to separate authorities.
This is not to say that this is the only way to address this challenge. It depends on the specific
characteristics of the financial sector in a country which design is best suited. In our case, for instance,
we have a highly concentrated financial sector with institutions that are, almost by definition,
systemically relevant. As a consequence we considered it essential to link prudential banking
supervision with the central bank and its other functions such as oversight of the payment system and
providing lender of last resort facilities. But as I said, circumstances and the solutions chosen will vary
from country to country. This is fine, as long as the approaches have at least one thing in common:
they should be designed with the aim of ensuring consistency. Consistency not only in regulation, but
also in supervisory practice. This is an important precondition for achieving a level playing field for the
international financial industry.
Let me add, as a final observation, that in achieving this goal, there is an important complementary
role to be played by market discipline. Meaningful disclosure by financial institutions is a potentially
powerful tool in furthering the cause of a level playing field between countries and across institutions.
Ladies and gentlemen, let me conclude.
Looking back in history, we are a far cry now from where we were fifty years ago, when our
predecessors introduced formal banking supervision in the Netherlands. Looking forward into the
future, I am pretty sure that our successors will not be celebrating the centenary of the Act on the
Supervision of Credit Systems, or even the centenary of insurance supervision 20 years from now. We
will have entered a cross sectoral world long before then! And as to the topic they will be discussing,
that could well depend on the turning we take on the crossroads that we are at now.
Thank you for your attention. I wish you all an interesting and entertaining conference.