Toespraak van minister Dijsselbloem bij de Internationale Conferentie van DNB

Toespraak | 24-09-2015

Ladies and Gentlemen,

You are our Watchmen. I realized this, thinking of a novel I read this summer, Go Set a Watchman by Harper Lee. This book was written by Lee before she wrote her famous novel To Kill a Mockingbird. And I also re-read that. In fact, I re-read it before reading Go Set a Watchman. Both novels are about a girl who admires her father greatly, for his wisdom and his moral leadership. The two novels describe two different periods in the girl’s life and therefor give a different perspective. In To kill a Mockingbird, as a very young girl, she finds her father’s moral standards are beyond a doubt. One simply doesn't kill a Mockingbird! In Go Set a Watchman it becomes clear that circumstance, time and place, can give a different perspective on the question: ‘What is right?’. She finds out that even her father’s moral standards are subject to the complexity of history, race, and politics in the South of the US. Her expectations were let down. She could no longer simply derive morality from her father; she had to become her own person. The novels show that even something as essential and intrinsic like morale turns out to be relative.

That’s how I get to the financial sector. And to you. Society judged hard on how standards were - some say ‘are’ - perverted inside the financial sector. But you could also say that the environment, the corporate culture, the incentives made it extremely challenging to uphold moral standard. Recently, here in the Netherlands, a book by Joris Luyendijk has caused some turmoil. In his book called Swimming with Sharks. My Journey into the World of Bankers he describes his findings of the financial sector in London. As you already imagined, the story is not very positive on how the culture in the City has evolved since the crisis. This book about the financial sector is a best seller in the Netherlands. And shortly after it hit the bookstores, commentators, politicians and the public once more concluded that the moral compass of the financial sector is still ‘off’. Luyendijk largely blames the ‘system’ for causing bankers to act the way they do. And by doing so, at least in my mind, lets individuals more or less of the hook. Even people with the right moral compass would eventually not be able to break the culture in the financial sector. Certainly not in the City. At least that’s his theory. Harper Lee' novels show that the environment and the time you live in will inevitably influence and maybe even jeopardize your moral standards. So yes, the system does matters. But Go Set a Watchman also shows you need to be alert and in the end take your own individual responsibility.

At the same time, continuing to blame bankers and simply say they should behave differently is not the solution either. Upholding high moral standards and high corporate standards, requires a lot. It requires training, awareness, a bank oath with disciplinary law, rules and regulations, compliance, leading by example, a 'questioning-culture'. It requires public awareness and finally it requires outsiders looking in. There are three parties that have to create the necessary culture change: the bankers themselves, the regulators and finally you, the supervisors. Let me please give a few examples of how these three groups in the Netherlands have tried to redefine the moral compass in the financial sector

On the requests of our banks, an oath for bankers has been introduced. First this obligation was only for executive board members and non-executive board members of institutions. This year, upon request from the banks, the oath has been broadened to a wider group of employees in the financial sector. This leads to 90.000 bankers taking the oath. From investment bankers to the receptionists. From traders to the chairman of the board; everyone has to take the oath.

With the oath, bankers promise to work with integrity and care. They promise to carefully weigh the interests of all those involved: the customers, the employees and society as a whole. To put the customer at the centre of attention and to inform the customer as good as possible. To act according to the laws, rules and behavioural codes. Not to spread confidential information. Not to abuse information. To act openly and responsibly for society. And they promise to promote trust in the financial sector. With this oath, employees become more aware of the underlying values, which can be summarized as: act decently. Moreover, disciplinary regulations are introduced in the law to ensure that taking the oath is regarded as meaningful. This was also an explicit request from the banks. This oath is, in my mind, an example of how banks can regain trust from society and at the same time change the culture in their companies.

Obviously, we need regulators to set strict capital requirements to make sure banks are strong. But also on the issue of culture the regulators play a role. In the Netherlands the most prominent example is the law that caps the maximum bonus in the financial sector.

The crisis showed that remuneration schemes were perverse, because employees could double their salary through variable bonuses or provisions. Which means that it was in the interest of the employee to sell as many specific products as possible. With misselling, product pushing and irresponsible risk taking as a consequence. This was, of course, not in the interest of the customer. The US Financial Inquiry Commission even concluded that one of the underlying causes of the crisis was a 'systemic breach in accountability and ethics at all levels'.

As you all know, the new European Capital Requirements Directive contains many rules concerning remuneration. Firstly, a bonus cap of 100 percent has been introduced. Next, the variable remuneration can’t be paid out at once any more, but is spread out over time. Moreover, a bonus has to be returned when it turns out the beneficent has made serious mistakes. And performance reviews now incorporate several years, which means that a variable remuneration for performance is now a long-term reward. These are all steps in the right direction.

In the Netherlands, we have gone even further. We have lowered the bonus cap to 20 percent of the fixed remuneration. We have stricter rules for severance payment, claw back and variable remuneration at companies that receive state support. And, in the Netherlands, we have chosen to apply these rules to the entire financial sector, not just the banks and investment firms. These rules drastically reduce the perverse incentives, irresponsible and excessive risk taking and put customers back in the bank’s centre of attention.

But as I've said, you need more than stricter rules to change a culture. It's not only about creating codes of conduct. It's specifically also about living by them. Especially in the boardroom. Managers need to lead by example. We need the so-called ‘tone at the top’ to be right. And here, you the supervisors, can play a crucial role. The EBA, the European Banking Authority, has analyzed how different European countries test the top of the financial sector. And I'm proud to say, the EBA has mentioned the Dutch Design of fit and proper testing methods as a best practice. I think it's excellent European institutions increasingly look at culture and the tone at the top in the boardroom and I have no doubt Julie Dickson of the ECB, who will speak to you later, will support this.

You, the supervisors, have also concluded that these fit and proper tests for members of the management boards and for key functions contribute to better corporate governance:

the financial institutions now realize what level of knowledge, experience and competences is expected of their top managers. They understand that they need to hire persons who fit this profile. We have seen that especially the larger financial institutions have professionalized their recruiting during the last years and that also the smaller ones are moving in the right direction.

With these examples I hope to have shown that redefining the financial sector requires a mutual effort. And I hope to have shown some of the big steps that have been taken in Europe and over the last few years here in the Netherlands. Particularly in embedding aspects of behaviour and culture in banking-supervision. I hope that the SSM will follow suit in this approach.

Finally, allow me to come back to Harper Lee. Her novels show that even the highest moral standards can be challenged and compromised by circumstance or culture. Being aware of that is a first step in changing that culture. Individuals and companies are helped by outsiders looking in. It requires good Watchmen. You are the watchmen. You must uphold and guard the material and moral standards which society requires from our financial sector. And do so in a rapidly changing environment. That is quite a challenge.

I thank you and wish you have a fruitful conference.

Thank you.