A Viewpoint for the Future Markets Consultation

As part of the Future Markets Consultation, individuals and organizations are invited to submit a viewpoint on any topic that is of relevance for creating a more just and sustainable market economy in Europe. This is a viewpoint submitted by the Sustainable Finance Lab.

The financial crisis of 2008, when Lehman Brothers went bankrupt, caused all kinds of financial and economic problems in the United States and Europe. Things became stable after a while, but prices of houses and stocks have been breaking new records. Is the financial crisis something of the past or a problem which is going to repeat itself? And if so, how can we prevent this from happening? A viewpoint from the Sustainable Finance Lab.


This viewpoint is a translated summary of the 2018 publication ‘Werk in Uitvoering’ [‘Work in Progress’], in which the Sustainable Finance Lab presented her vision, 10 years after the start of the financial crisis

Money and credit enable extraordinary forms of cooperation and specialisation. However, this does not come without risks. In economic good times, there is a lot of credit whereby prices of houses, stocks and other assets rise. This rise of prices further enhances optimism and thus the demand for even more credit. Within this interplay a growing percentage of all credit is used to buy assets instead of productive innovation. Thus, the financial sector gets disconnected from the real economy. At a certain moment this interplay changes; prices of assets fall, unemployment rates rise, and the credit provision is tightened.

This financial cycle disrupts the real economy. Now more than in the past due to the international interconnectedness of the financial system, deregulation, and ICT. In 2008 and thereafter the Netherlands was hit hard, because of high pension savings, mortgage debt, and a big financial sector. The economy has partly recovered, but during the relatively good years not enough effort is made to structurally enforce society, our economy, and the financial system.

Private financial entities are responsible for essential public interests (i.e. payment system and personal savings). Since these interests had to be saved, governments and central banks needed to help banks during the credit crisis. After the crisis, high levels of regulations were forced on banks. Because of this, they are not able to serve the society in the way they should. Despite improvements in regulation and risk management, banks are still ‘too big to fail’ and the financial cycle can not be controlled. Thus, without radical measures, the financial sector is unsustainable and will further disrupt the real economy.
We need to secure essential public interests, so that private risks stay private and are not transferred to tax payers. To improve this, we need to work on a European level on regulations.


1. Structural interventions leading to responsible behaviour

To have a healthy financial system we must be aware of dealing with risks. It must be clear who will and can deal with risks. This is not the case now. Therefore we recommend to reduce the interconnectedness between private risks and public interests via a public saving option at a deposit bank and by creating a publicly anchored payment system. Secondly, we need to increase equity levels in our society in order to have a financial buffer. It is also necessary to have equal tax rules for
equity and debt. Lastly, we argue that a new balance between creditors and debtors whereby costs are spread between debtors and creditors.

2. Connect financial system with society

The financial sector steers the economy and society, since it decides who will get credit. Now, financial entities have short term impulses which negatively affect this steering function. To improve this we have six recommendations:

  1. First of all, financial institutions need to have a clear purpose for the common good. They need to show how this purpose is translated in their activities and structure.
  2. Secondly, public supervision is needed within a financial institution. This can be done via people within the supervisory board in combination with a fixed independent societal advisory commission.
  3. Thirdly, the role of short term focused shareholders must be decreased. This can be done via partly delisting banks from the stock exchange. For example via certification of stocks or ‘golden public stocks’. At the same time it is needed to change shareholders towards more long term oriented judgements.
  4. Fourthly, it is necessary to also incorporate ecological risks.
  5. Fifthly, proportionality in supervision is needed. Since banks need room to be entrepreneurial and need to take risks. This can be enabled through a change from ‘rule based’ supervision to ‘principle based’ supervision.
  6. Lastly, promote productive investments. The last years, too much credit has gone to buying assets instead of productive investments. To change this we have to discourage speculative capital gains via taxes, and a public investment bank such as Invest NL.

3. A level playing field for societal forces

We need more transparency from the government and supervision entities on their relations with the financial sector. We also need to have a more broad and structural involvement of the government and parliament. It is also needed to invest in more societal ‘watchdogs’ to regulate the lobby forces from financial institutes on the government. Lastly, more knowledge and insight is needed via improvements in education.

4. An independent supervisor with sufficient instruments

Households, financial institutions, and even countries are not able to control the financial cycle. We need to have a party which can do this, so public interests can be secured. This party must be independent from the government and the financial sector. Additionally, we need to have more political attention for advices from supervisors. For example, the Dutch central bank argued for years for a lower loan-to-value. Lastly, we argue to give supervisors the opportunity to diversify mortgage norms to decrease the fluctuation in the financial cycle.

Authors / contributors