Reshaping the governance of the Dutch banking sector: impact of the Dutch Banking Code

Just as in other countries, the consequences of the financial crisis in 2008 were clearly visible in the Netherlands. Consumers lost confidence in the financial sector, which had an enormous impact on the functioning of the financial sector. In order to restore trust, the Dutch government offered the Dutch banking sector the opportunity to self-regulate their corporate governance. This resulted in the development of a sector-specific corporate governance instrument, the so-called Banking Code. The Dutch Banking Code consists of 48 principles with regard to the supervisory and management board, risk management, audit and the remuneration policy. Banks are compelled to be transparent about the compliance with those principles in their annual report by means of the 'comply or explain' principle. The focus of this paper is whether the 'comply or explain principle' has been effective and whether self-regulation has helped to reshape the governance of the Dutch banking sector. Based on the results of a survey of the annual reports of 27 Dutch banks over the years 2010-2014, the conclusion that the banks take the application of the Banking Code seriously seems justified. Our conclusion is that self-regulation in combination with the 'comply or explain' principle is sufficiently effective in the Netherlands. However, to stay effective over a longer period of time, certain preconditions must be met. These preconditions comprise our recommendations for a future-proof Code, which will enhance the governance in the sector and result in better dialogue between the banks and society, which in turn could result in restoring trust in the banking sector.