Last Updated 07 May 2020

The Netherlands Banking and Financial System

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This report looks at the Banking and Financial systems of the Netherlands. It first provides a background of the Dutch economy and its significance in the world financial markets. It looks at the role of the Netherlands in trade (it has two of the largest ports in the world) and provides an outline of how the financial system has been built around this trade. The report then looks at the development of the banking system over the last half century with the nationalisation of the Dutch National Bank in 1948 with the passing of the Bank Act.

It also looks at how the Banking system has had to integrate with Europe under the European Monetary Union, and how this integration has changed the scope of the DNB. The report then focuses on the regulatory framework of the banking and financial systems by giving an outline of the policies establishes as well as the impediments of some of the policies and regulatory bodies responsible for the up-keep of the policies. The Netherlands has always been at the forefront of World Banking, Finance and Economics.

It was one of the first countries to be accepted in the European Monetary Union, and has managed to integrate its systems and infrastructure to cope with its new found role in Europe. However, as Basel II is beginning to change the landscape, so too is the need for the Dutch to improve and continuously change and regulate its markets. This report provides an insight into the current institutional structure of the Banking system, as well as a historical note on its development and the current regulatory climate that it operates in.

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Furthermore, a brief summary is provided on the history of the Dutch economy and its main roles in Europe and the world. The Dutch economy is one of the most developed economies in Europe and the world. The country primarily derives its income from trade and services. The Rotterdam and Antwerp ports (which are some of the biggest in the world) serve as a vast centre for the movement of goods across Europe and the world, and it is this back-drop that has made the Netherlands such an important centre for the movement of funds and currency, and hence an important centre for banking and financial services and trade.

The Netherlands bills itself as a gateway to Europe and actively encourages foreign investment. The incentives offered are not the most generous in Europe, because the Netherlands prefers to concentrate on its inherent advantages to businesses. These include labour stability as well as a skilled and well-educated workforce known for its productivity and multilingual abilities, international outlook and hospitality. These advantages are evident both in the many distribution and call centres and in the information-technology companies that have been established in the Netherlands in recent years.

(Anonymous, 1996, p. 60) The Netherlands have been one of the more successful Foreign Direct Investment attractors; it attracted US$34. 1bn in 2002. Since the Netherlands is only a medium-sized economy in EU terms, its success in attracting FDI is even more apparent when measured as a share of GDP: inward FDI stock amounted to 75% of GDP in 2002, the highest ratio in the EU after Belgium and Luxembourg. Despite its success as an FDI host, the Netherlands, like many developed economies, is still a net exporter of direct investment capital, with a net outflow of US$6.

3bn in 2002. (Van Den Bergh, 1998, p. 46)The Netherlands has always prided itself on having a very progressive Banking system. Indeed, as early on as 1936 it was one of the first countries to abandon the Gold Bullion standard, thus putting an end to the Bullion exchange system some 12 years before the Bretton Woods agreement. It was also one of the first countries to establish a regulatory organization to monitor banking and finance activities. This organization is known as the Dutch National Bank (DNB).

The DNB was nationalized in 1948, with the passing of the Bank Act 1948. This act stipulated the extensive roles of the DNB as a regulatory body responsible for the setting of Monetary Policy; a mixture between APRA and the RBA in Australian terms. (http://www. dnb. nl/dnb/detail. jsp? pid=tcm:13-40093-64) - 20 / 08/ 05 Since 1948, the DNB has been using its new imposed powers very stringently, adding to the stability of the Netherlands economy and Banking system to this day.

In fact, For 50 years, the 1948 Bank Act was the foundation of the DNB, which, in that period, grew into a modern monetary institution playing a significant role in the unprecedented economic prosperity of the Netherlands. The European co-operation built up after the Second World War, which led to the creation of the Economic and Monetary Union (EMU) and the introduction of the European single currency, the euro, required the implementation of the 1998 Bank Act.

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