Current topics explained by RUG professionals

Public banks

The Scientific Council for Government Policy (Wetenschappelijke Raad voor het Regeringsbeleid, or WWR) has proposed setting up a public bank. Such a bank would provide risk-free savings and checking accounts. And it would be the only bank allowed to create its own money in order to prevent debt in times of crisis.
By Christine Dirkse

Dirk Bezemer

Professor of economics

‘The amount of money available increases as the economy grows. That is because banks are allowed to create their own money. If someone gets a loan, for a mortgage for example, the bank deposits money in their account. The bank doesn’t actually have that money; they create it. This system works as long as the loans are paid off. Too many debts can lead to a crisis.

So the WRR is proposing a public bank and allowing only that bank to create more money. That would mean commercial banks would be banned from doing so. The argument is that this public bank, i.e. the government, wouldn’t be influenced by everyday hype; they would be smart about the loans they provide.

I wonder if there is a point to that. But I also don’t think the government always acts in the public’s interest. Government officials can be swayed by whimsy as well. It’s good to want to prevent a new crisis, but whether this is the way to do it I don’t know. Regulating commercial banks better would also increase financial security.’

Boudewijn de Bruin

Professor of financial ethics

‘Whether or not you think public banks are a good idea depends on how you feel about the state: should the state take care of everything (communism) or as little as possible (liberalism)?

Politicians will sometimes try to turn the Netherlands into a corporation: The Netherlands, Inc. But a country isn’t a corporation: if we don’t like the new terms and conditions (i.e. taxes, laws), we can’t just go to the competition. There is also no free market. A country isn’t a corporation and shouldn’t act like it is.

But that doesn’t mean certain state affairs can’t be treated like a corporation. In the case of banks, though, it would mean that civil servants would be doing the lending. But they don’t have the expertise and they’ve been trained to be servile and have no commercial instincts. Banks need that commercial instinct.

So either the government becomes more commercial, which comes with its own inherent risks and would actually diminish the difference between public and private banks, or you have civil servants make decisions they weren’t trained for. Neither option seems like a good idea to me.

We shouldn’t forget that deregulation has its advantages. If it’s done well, it could also lead to corporations such as credit rating agencies or banks taking better care of their responsibilities. You don’t always have to make the state do it.’

Bert Scholtens

Professor of economics

‘We haven’t had a public bank in the Netherlands for over a century. In the nineteenth century, only corporations and the elite had bank accounts. The Maatschappij tot Nut van ‘t Algemeen (Society for Public Benefit) founded local savings banks to provide access to financial services to common people.

In 1881, this led to the creation of the Rijkspostspaarbank (RPB), a national savings bank controlled by the government. Not much later, the Postcheque- en Girodienst (PCGD) was created, which made using cheques and giro transfers available to the Dutch people.

But these two services were no match for the commercial banks. In an attempt to create a competitive government bank, RPB and PCGD were merged to become Postgiro, which eventually became the Postbank.

But the Postbank was subsumed by commercial banks within a few years. Nevertheless, we do still have public banks, such as the Nationale Investeringsbank and the Nederlandse Bank. More than half of the SNS bank still belongs to the government.

The WRR’s proposal is meant to curb risk. That’s also what the RPB was created for one hundred years ago. But banking without risk is impossible. It’s like trying to create a perpetuum mobile or finding the elixir of youth. It’s a great endeavour that’s certainly worth a try, but there are no guarantees.’