Government support to financial institutions: an international comparison
During the recent crisis, governments helped out financial institutions in various ways. Compared to other countries, the Netherlands provided substantial support by way of capital injections. The Netherlands has an extensive banking sector in proportion to its GDP. At times of global financial crisis, robust intervention by our government is therefore an obvious course of action. Part of this support has already been repaid.
This can be inferred from the table below, which provides a comparative overview of the different support measures taken by the Netherlands, Belgium, Germany, France, Ireland, the United Kingdom, the United States and Switzerland.The following three support measures are distinguished: capital injection, asset relief and debt guarantee.
Table - Government support to financial institutions (GDP %) (positions as at 1 August 2010)
| Capital injected | Repaid | Asset relief | Debt guarantee |
|---|
| Netherlands | 7.39 | 1.08 | 10.79 | 9.14 |
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| Belgium | 6.18 | -- | 11.72 | 17.90 |
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| Germany | 1.95 | 0.01 | 11.76 | 4.97 |
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| France | 1.19 | 0.74 | 0.26 | 5.95 |
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| Ireland | 13.10 | -- | 5.42 | 49.15 |
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| Spain | 0.96 | -- | 0.04 | 5.25 |
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| UK | 4.03 | -- | 16.66 | 7.38 |
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| US | 3.64 | 1.50 | 3.80 | 2.71 |
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| Switzerland | 1.43 | -- | 9.55 | -- |
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In the event of a capital injection, governments provide support by buying shares or granting loans. Since the failure of Lehman Brothers practically all countries have taken measures to improve the capital positions of financial institutions. Between countries and institutions, support measures may vary widely in size and form, in compensation received by the government and in repayment conditions. Including the repaid support payments, capital support in the Netherlands amounts to 6.3% of GDP. The position of the Netherlands in this respect more or less corresponds with our country's position in the overview of banking sector sizes.
In addition to capitalising institutions, most countries also implemented measures to remove specific assets from the institutions’ balance sheets (asset relief). In most cases, the measures are tailor-made (e.g. the Alt-A portfolio of ING), but some countries have introduced a special programme for buying problem assets, like NAMA in Ireland. Just as in the case of capital injections, asset relief programmes are very diverse in terms of conditions. Having provided 10.8% of GDP by way of this type of support, the Netherlands finds itself in the middle bracket, together with Belgium (11.7%), Germany (11.8%) and Switzerland (9.6%). At 16.7% of GDP, the UK scores highest.
Most countries enable banks to issue debt securities under government guarantee. In Europe, the conditions for these guarantee schemes are fairly harmonised. The guarantee scheme premium differs from one bank to another and is based on market prices. Figures on debt guarantees issued are very divergent. Ireland granted a guarantee on bank debt representing no less than 49.2% of GDP. At 17.9%, Belgium, too, is on the high side. The Netherlands comes third (9.1%). The guarantees issued have not led to actual payments by the Dutch government owing to default on the part of the institutions to which the guarantees were extended.
Conclusion
Compared to other countries, the Netherlands has lent relatively much support to financial institutions, in particular through capital injections. As the Netherlands has an extensive financial sector, robust intervention by our government is an obvious course of action at times of global financial crisis. Part of this support has already been repaid. Apparently, this support to 'basically healthy institutions' has paid off.
