Global Financial System Belgium

8/8/2019 Global Financial System Belgium

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P r o j e c t o f IBF

HAILEY COLLEGE OF COMMERCE

UNIVERSITY OF THE PUNJAB


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We are thankful to ALLAH (all mighty) for guiding us and giving us power

and courage.

Project prepared by:Bilal Raja 792


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C O N T E N T S

1. PROFILE

2. GLOBAL FINANCIAL SYSTEM

3. ROLE OF THE CENTRAL BANKS

4. STRUCTURAL EVOLUTION AND PRUDENTIALSUR-VEILLANCE OF THE BELGIAN FINANCIAL MARKET IN THE EU

ENVIRONMENT

5. GENERAL FINANCIAL ACTIVITIES

6. RISK MANAGEMENT TECHNIQUES7. CENTRAL BANKING IN 19TH-CENTURY BELGIUM:

WAS THE NBB A LENDER OF LAST RESORT?

8. LIST OF BANKS IN BELGIUM

9. ING SECOND LARGEST FINANCIAL INSTITUTION OF BELGIUM

10.20082009 BELGIAN FINANCIAL CRISES

11.SECTORS


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PROFILEOFFICIAL NAMEKingdom of Belgium

GeographyArea: 32,547 square kilometers (12,566 sq. mi.), about the size of Maryland.

Cities:Capital--Brussels (pop. 1,031,215). Other cities--Antwerp (466,203); Ghent(235,143); Charleroi (201,550); Liege (188,907); Bruges (116,982); and Namur (107,653).

PeoplePopulation (2009): 10,666,866.Annual population growth rate (2009): 0.094%.Density: 861 per sq. mi.Linguistic regions--(Dutch-speaking) Flanders 57.9%; (French-speaking) Wallonia 31.7%; (legally bilingual) Brussels Capital Region 9.7%; German-speaking 0.7%.Religions: Predominantly Roman Catholic, with Protestant, Jewish, Muslim, Anglican,Greek and Russian Orthodox, as well as secularism, "recognized" religions receivinggovernment subsidies.Languages: Dutch, French, German.Education:Literacy--99%.

GovernmentType: Parliamentary democracy under a constitutional monarch.Independence: 1830.Constitution: 1994 (revised).Branches:Executive--King (head of state), Prime Minister (head of government), Councilof Ministers (cabinet).Legislative--bicameral parliament (Senate and House of

Representatives).Major political parties: Christian Democratic, Liberal, Socialist, Green, Vlaams Belang.Suffrage: Over 18, compulsory.Political subdivisions: Ten provinces, three regions, three communities, 589 municipalities.

Economy of BelgiumCurrency: EuroFiscal year: Calendar yearTrade organizations: EU, WTO and OECD

StatisticsGDP: $390.5 billion (2008)


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GDP growth: 1.3% (2008)GDP per capita: $37,500 (2008 est.)GDP by sector: agriculture (1%), industry (24.2%), services (74.9%) (2008 est.)Inflation (CPI): 4.5% (2008 est.)Population below poverty line: 15.2% (2007 est.)

Gini index: 28 (2005)Labour force: 4.99 million (2008)Labour force by occupation: services (73%), industry (25%), agriculture (2%) (2007est.)Unemployment: 6.5% (2008 est.)Main industries: engineering and metal products, motor vehicle assembly, transportationequipment, scientific instruments, processed food and beverages, chemicals, basic metals,textiles, glass, petroleum.

ExternalExports: $372.9 billion f.o.b (2008 est.)Export goods: machinery and equipment, chemicals, finished diamonds, metals and metalproducts, foodstuffsMain export partners: Germany 19.5%, France 16.7%, Netherlands 11.9%, UnitedKingdom 7.6%, United States 5.7%, Italy 5.2% (2007)Imports: $375.2 billion f.o.b. (2008 est.)Import goods: raw materials, machinery and equipment, chemicals, raw diamonds,pharmaceuticals, foodstuffs, transport equipment, oil productsMain import partners: Germany 17.7%, Netherlands 17.6%, France 11.2%, UnitedKingdom 6.2%, United States 5.4%, Ireland 4.9%, China 4.1% (2007)Gross external debt: $1.354 trillion (2008)

Public financesPublic debt: $451 billion (89.1 % of GDP) (2008 est.)Revenues: $251.3 billion (2008 est.)Expenses: $254.2 billion (2008 est.)Economic aid: $1.978bn (2006)

All values, unless otherwise stated, are in US dollars

GLOBAL FINANCIAL SYSTEM

The global financial system (GFS) is a financial system consisting of institutions and

regulators that act on the international level, as opposed to those that act on a national orregional level. The main players are the global institutions, such as International MonetaryFund and Bank for International Settlements, national agencies and governmentdepartments, e.g., central banks and finance ministries, and private institutions acting on theglobal scale, e.g., banks and hedge funds.

Deficiencies and reform of the GFS have been hotly discussed in recent years.

History

The history of financial institutions must be differentiated from economic history andhistory of money. In Europe, it may have started with the first commodity exchange, theBruges Bourse in 1309 and the first financiers and banks in the 14001600s in central and


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Western Europe. The first global financiers the Fuggers (1487) in Germany; the first stockcompany in England (Russia Company 1553); the first foreign exchange market (The RoyalExchange 1566, England); the first stock exchange (the Amsterdam Stock Exchange 1602).

Milestones in the history of financial institutions are the Gold Standard (18711932), the

founding of International Monetary Fund (IMF), World Bank at Bretton Woods, and theabolishment of fixed exchange rates in 1973.

Institutions

International institutions:

The most prominent international institutions are the IMF, the World Bank and the WTO:

The International Monetary Fund keeps account of international balance of paymentsaccounts of member states. The IMF acts as a lender of last resort for members in financial distress,e.g., currency crisis, problems meeting balance of payment when in deficit and debt default.Membership is based on quotas, or the amount of money a country provides to the fund relative tothe size of its role in the international trading system. The World Bank aims to provide funding, take up credit risk or offer favorable terms todevelopment projects mostly in developing countries that couldn't be obtained by the private sector.The other multilateral development banks and other international financial institutions also playspecific regional or functional roles. The World Trade Organization settles trade disputes and negotiates international tradeagreements in its rounds of talks (currently the Doha Round)

Government institutions:

Governments act in various ways as actors in the GFS: they pass the laws and regulations

for financial markets and set the tax burden for private players, e.g., banks, funds andexchanges. They also participate actively through discretionary spending. They are closelytied (though in most countries independent of) to central banks that issue government debt,set interest rates and deposit requirements, and intervene in the foreign exchange market.Private participants

Players acting in the stock-, bond-, foreign exchange-, derivatives- and commodities-markets and investment banking are Commercial banks Hedge funds and Private Equity Pension fundsLegal frameworks and treatises: Commonwealth of Independent States (CIS) Euro zone Mercosur North American Free Trade Agreement (NAFTA)] PerspectivesThere are three primary approaches to viewing and understanding the global financialsystem.

The liberal view holds that the exchange of currencies should be determined not by state

institutions but instead individual players at a market level. This view has been labeled asthe Washington Consensus. This view is challenged by a social democratic front which


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advocates the tempering of market mechanisms, and instituting economic safeguards in anattempt to ensure financial stability and redistribution. Examples include slowing down therate of financial transactions, or enforcing regulations on the behavior of private firms.Outside of this contention of authority and the individual, neoMarxists are highly critical ofthe modern financial system in that it promotes inequality between state players, particularly

holding the view that the political North abuse the financial system to exercise control ofdeveloping countries' economies.

ROLE OF THE CENTRAL BANKS

This unit could be considered

part of the political environment - because laws and regulations effect this part of the economic environment - because banking is a consequence of economic activity even part of the technological environment - because the central banks of some large

countries have very complex IT systems which facilitate processing complex informationand aid in critical decision making

In this short section you will be advised to read some material directly on he website for thecentral bank of Belgium, namely the "National Bank of Belgium". You are stronglyencouraged to do this since it is the best way of learning about the activities of thisinstitution - directly from the source.

Several ways a Central bank can intervene in currency markets

coordinate its action with other banks execute action on its own enter the market aggressively (means to buy or sell a lot of the currency of its nation) call for reassuring action (means a public speech by the Governor of the Central Bank) public relations activitieso announce some detail about an operationo avoid an announcement operate through brokerso secretlyo in the open

STRUCTURAL EVOLUTION AND PRUDENTIAL

SUR-VEILLANCE OF THE BELGIANFINANCIAL MARKET IN THE EU

ENVIRONMENT

MAJOR STRUCTURAL CHANGES IN THE BELGIANFINANCIAL SECTOR

GROWING CONCENTRATION IN THE SECTOR


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One of the most striking developments within the Belgian banking sector is undoubtedlythe concentration into a small number of very large groups. Nowadays, the 4 maininstitutions collect 82 p.c. of all bank deposits from Belgian residents. While Belgium is arather extreme case in the EU, the banking sector is also becoming increasinglyconcentrated in the other euro-zone countries as the share of the 5 largest credit institutions

in each domestic market, expressed in terms of percentage of total assets, exceeds onaverage 50 p.c.

The 4 main Belgian groups share two specific characteristics. First and fo-remost, theyhave a strong international dimension. The cross-border structure is the most complete inthe case of Fortis and Dexia which are among the few international financial groups formedthrough a merger between institutions from different coun-tries. ING Belgium is one of themain subsidiaries of a multinational Dutch financial group, while the Belgian group KBChas a strong presence abroad, too, most notably in Central and Eastern Europe.

NEW PATTERNS IN HOUSEHOLD SAVING BEHAVIOUR

The development of bank assurance has enabled the main Belgian financial groups to bothaccompany and benefit from a major trend in the saving behavior of Belgian households, i.e.a growing interest in institutional investment products. While Belgian households havetraditionally invested the bulk of their savings with banks, the relative importance of thiscategory of claims had declined from 46 p.c. in 1994 to 34 p.c. by 2005. The value ofoutstanding claims on institutional investors the sum of financial assets invested ininsurance products, mutual funds and pension fundsnow largely exceeds total householdinvestment in bank products. At the end of 2005, it accounted for 41 p.c. of total financialassets compared to just 18 p.c. in 1994.


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NEW ENVIRONMENT FOR INTEREST RATE RISK MANAGEMENTThe diversification into insurance products also offers potential in terms of risk managementas it allows Belgian financial groups to better manage their global interest rate exposure.Indeed, the main consequence of banks maturity transformation activities is that the

duration of their liabilities is much shorter than that of their assets. This maturity mismatchis offset, at the level of bank assurance groups, by an opposite mismatch, in the insurancebranch of business, between the long duration of life insurance liabilities and the shorterduration of the asset portfolio.

While this kind of compensation effect is at work in the case of an interest rate "change", alow general "level" of interest rates, as has been observed in recent years, raises issues forboth types of business. In the banking sector, the intermediation business becomes lessprofitable as the gap between market rates and low-interest sight deposits narrows. In theinsurance sector, it becomes much harder to generate the regular income needed to get thereturn guaranteed to the defined benefit contracts.


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DIVERSIFICATION OF CREDIT ACTIVITIESThe constitution of large cross-border financial groups, already discussed in section 1.1, hashad a very significant impact on the nature of Belgian banks credit activities. While, at theend of 1999, almost half of Belgian banks' total assets was still on domestic counterpart, thisshare declined to less than 30 p.c. in 2006. It is true that interbank activities have, for many

years, been largely internationalized. But this trend has now spread to other wholesaleactivities. In particular, the outstanding amount of loans to foreign non-financialcorporations currently comes to about three times the corresponding amount for Belgiancorporations. Even in the retail sector, Belgian banks have greatly enlarged their market asloans to foreign households now account for 45 p.c. of total loans to households.

CHANGING NATURE OF BANKING ACTIVITIESAll the above-mentioned structural developments are gradually contributing to change the

nature of banking. Belgian credit institutions have come a long way from the traditionalcollection of deposits and their intermediation through providing loans or acquiring bonds.


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When it comes to client relations, banks are increasingly acting as advisers through theirprivate banking activities. They are also offering asset management services to institutionalinvestors, when they are not acting in that capacity themselves. In certain segments of thecredit market, banks' role is increasingly moving towards one limited to origination, withexposures subsequently being offloaded onto third parties. Instead, credit institutions are

turning more and more towards the provision of merger and acquisition advice or corporatefinance services by setting up bond-financing programmers or private and public equityissues.

IMPLICATIONS FOR PRUDENTIAL SURVEILLANCE OFBELGIAN FINANCIAL INSTITUTIONS AND MARKETS

Supervisory Authorities

As a result of the various developments described in the first section, supervisors havecome under heavy pressure to adapt their regulatory approach. In no field has this been feltmore strongly than in the definition of capital requirements, traditionally considered as theprimary instrument for regulating banking activities. Indeed, the very nature of risksendorsed by banks in the exercise of their core activity, i.e. the financing of mostly illiquidassets, usually held to maturity, by liquid liabilities, mainly collected from uninformeddepositors, requires strong capitalization. Yet, in response to deregulation and the ensuingcompetition, many banks have been inclined to increase their leverage or to undertake morerisky business with an unchanged capital base.

The close dialogue between financial institutions and prudential authorities is not confined

to the analysis and validation of internal models. It also extends to the global organization ofthe risk-management function. As banks' risk profiles are changing very rapidly and theinternal models used for monitoring these risks are becoming increasingly complex,supervisors are finding it more and more difficult to carry out their mandate. As a result,they have to rely more heavily on the existence of sound governance principles and goodmanagement practice within the banks themselves.

Requirements for market information are also changing. This dimension has been takenexplicitly into account by Basel II through the specific role assigned to market discipline. Itis probably no coincidence that the introduction of the new international accountingstandard (IAS/IFRS), which requires a much greater use of market prices in accounting

reports, has more or less coincided with the implementation of the Basel II rules. Theobjective should be that financial institutions publish what they use in their internalmanagement systems and, conversely, use internally what they publish.

This combination of more risk-sensitive solvency rules, a dialogue between banks andsupervisors and market discipline forms the three pillars of the Basel II system. Thosevarious approaches will be needed to meet the forthcoming challenges linked to the above-mentioned changes in the nature of banks' activities.

One of the challenges emerges from risk diversification by financial institutions through thecreation of cross-sectoral conglomerates. As already discussed in section 1, the majorBelgian financial institutions combine commercial banking, insurance and security services.

Yet risk management is still highly fragmented as supervisors calculate separately howmuch capital is needed for credit risks, interest rate risks, market risks or even underwriting


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risks in insurance. Since the total risks are not equal to the sum of the parts, a moreintegrated approach is recommended.

However, a lot of research is still needed to devise adequate instruments to measure thetrue correlations between the various categories of risk.

Banks are also increasingly shifting some of their financial risks to third parties whichmake it more difficult for authorities, as well as for markets, to track the circulation ofrisks. As an example, nowadays banks are transferring parts of their loan portfolios tohedge funds which, in turn, are leveraging their own position by borrowing from thebanks. As a consequence, the latter could well end up financing the very elements of theportfolio that they have previously securitized in the markets.

More generally, when banks are transferring financial risks, this does not mean that theyno longer have any responsibility to assume. This is especially the case when risks are soldto retail customers. Supervisors have to make sure that banks are fully aware of thepotential consequences, in terms of reputation, of mis-selling products, giving bad adviceor neglecting their duty of care.

CONCLUSIONRecent changes in the EU financial sector have been wide-ranging. The combined effects ofnew technologies and deregulation have helped remove barriers and have had the result ofspeeding up consolidation of the sector. Households and corporations have greatly benefitedthrough the positive effects of stronger competition on prices and through wider choice.Financial institutions have adapted to this changing environment, relying on improved risk-management techniques to master the new risks they are taking on.

GENERAL FINANCIAL ACTIVITIES Bank Comparison Activity Banking Budget: Don't Go Broke (NEFE) Budgeting Budgeting & Checking Activity Budgeting Your Financial Resources (The Mint) Career Unit (NEFE) Consumer Fraud Credit: Buy Now, Pay Later (NEFE) Finan Lit.- Econ. Factors, Decision Making, Advertising Financial Literacy - Careers and Income Financial Literacy - Consumer Credit Financial Literacy - Consumer Privacy Financial Literacy - Consumer Rights & Responsibilities Financial Literacy - Credit Cards Financial Literacy - Debt and Poor Money Management Financial Literacy - Financial Institutions Financial Literacy - Financial Planning and Budgeting Financial Literacy - Income and Deductions Financial Literacy - Insurance and Risk Management Financial Literacy - Saving and Investing Financial Planning: Your Road Map Unit (NEFE) How Credit Works


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In Trouble Insurance: Your Protection (NEFE) Making Decisions Money Management Intelligence Online Financial Literacy Final Saving & Investing Unit (NEFE) Smart Shopping The Influence of Advertising What would it cost you today?

RISK MANAGEMENT TECHNIQUES

Performance analysis of banks and financial institutions: Risk management perspective Interest Rate Risk (IRR) Management: sources, quantification techniques and managementCommodity, Currency, Equity Risk Management: sources, quantification techniques andmanagement of such risks

Derivatives and Hedging Strategies Value at Risk: concept, methodologies, and applications Architecting internal rating models and improving the quality of internal rating models Credit risk models: Multivariate techniques and Z-Score model, Structured credit riskmodels, and other advanced credit risk models Credit derivatives and Securitization Operational risk management: Analysis of Models

Central banking in 19th-century Belgium: was the NBB

a lender of last resort?IntroductionIt is now commonly accepted that modern central banks have two main objectives:monetary stability and financial stability. There is further a broad consensus that theobjective of monetary stability is better defined than the objective of financial stability.Moreover, also our historical knowledge, at least with regard to Belgium, is much betterconcerning the history of monetary stability and the role of the National Bank of Belgium(NBB) hereby. Evidence on how this worked remains limited". The aim is to explore the roleof different institutions and of theNBB in particular during financial crises in 19th-centuryBelgium.

Some observations on the notion of financial stability and 19th

-century BelgiumThere is a broad consensus that financial stability is one of the more difficult and elusiveconcepts in economics. However, there is also a large consensus that there are reasons forcaring more about stability in the financial sector, especially banking, than in any otherindustry (Lamfalussy, 1988). First, banks are highly leveraged institutions, with long-termassets and short-term liabilities. So they are more vulnerable institutions. Second, the failureof individual financial institutions can lead to chain reactions within the system because ofthe strong links tying institutions to each other. The speed at which funds can be shifted andthe role of expectations are important elements hereby. Third, as a result of the central placeof financial institutions in the mechanism of credit allocation and in the payments system.


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Whatever happens within the banking world can have far-reaching consequences for the realeconomy. In this section, we highlight certain elements of financial stability which wererelevant for 19th-century Belgium.

It is generally accepted that monetary stability is a necessary condition for financial

stability. Indeed, it is important that money fulfils its key functions as disturbances on themonetary front generally lead to problems in the financial system. During most of the 19 thcentury Belgium adhered to bimetallism. From our perspective it is important to point outthat banknotes gradually became more and more accepted. As a result, the convertibility ofbanknotes into specie became an important element of monetary stability. In the 1830s and1840s several banks obtained the right of issue. However, there were several banking criseswhereby the convertibility of banknotes was suspended. In 1850 Finance Minister WalthreFrre-Orban succeeded in pushing through a major reform. The note issue was unified andbecame the responsibility of the newly founded National Bank of Belgium (NBB).Safeguarding the convertibility of banknotes into specie was a key function of the NBB in19th-century Belgium. With the exception of one major crisis in July 1870, caused by the

threat of war between France and Prussia, the NBB always accomplished this mission.

While monetary stability is generally considered to be a necessary condition for financialstability, it is certainly not a sufficient condition. Financial crises can occur also in periodswhen money is stable. Banks can run into trouble both because of liquidity and of solvencyproblems.

Naturally, financial stability is an important concern for policy-makers (Maes, 2007). In themodern day literature, one distinguishes two main objectives: the protection of smalldepositors and the avoidance of a systemic crisis. However, defining a systemic crisis is notsimple. Broadly speaking, one could characterize it as a situation whereby a crisis in the

financial sector has a large scale impact on the real economy (Lamfalussy, 2004).For safeguarding financial stability, typically, two types of activities are distinguished: exante preventive actions, especially regulation and supervision, which make it less likelythose crises will occur, and crisis management, especially the identification and resolutionof crises (EFC, 2001, Eichengreen, 2002, Mayes, 2004, Vaillant and Amouriaux, 1998).

Managing a crisis in a financial institution raises many issues. Crucial questions are: Whotakes the lead in the crisis operations? Should the bank be saved or can it go bankrupt? Whatwill be the role of bank mergers and restructurings in a long-term viable solution to thecrisis? What kind of (temporary) construction will be set up? Who will be financing therescue operations and paying for the losses?

Several institutions can have a role in dealing with banking crises: the government, thecentral bank, prudential authorities and private banks. We will see that in 19 th-centuryBelgium, the government, especially the Finance Minister, often played a leading role indealing with banking crises. Like in many other countries, specific prudential authoritieswere only created in Belgium in the 1930s, after the severe financial crises of the GreatDepression.

Also private banks were often involved in the resolution of banking crises. This is especially

the case in so-called lifeboat arrangementswhereby a group of banks comes to the rescue

of a specific institution. In 19th-century Belgium, several times, consortia were created to

help an ailing bank. At various occasions the Socit Gnrale, the biggest bank in Belgium,played an important role in these. Sometimes the NBB was a member of the consortia, but


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on several occasions it did not participate.

An important issue is then how one should weigh the benefits of preventing a banking panicagainst the costs of inducing riskier activities. This distinction between solvency andliquidity problems is especially relevant for 19th-century Belgium. Given the dominance of

universal banks, with participations in industry, solvability problems were a typical sourceof banking crises in 19th-century Belgium.

The creation of the National Bank of Belgium as acornerstone of financial reform.

The crisis of 1838: the government comes to the rescue:

In the early 1830s the Belgian Socit Gnrale became the first mixed (or universal) bankin Europe. It not only issued paper money, provided discount credit for commercialpurposes and operated a savings bank, but it also participated intensively in the share capital

of manufacturing corporations (Laureyssens, 1975; Kindleberger, 1993). Soon the SocitGnrale completely dominated the banking landscape in Belgium. This created a lot ofanimosity, the more so as the institution was suspected of favouring a return of the DutchHouse of Orange. So, in 1835, Belgian patriots set up a rival institution the Banque deBelgique, which was granted a range of functions comparable to that of the SocitGnrale, including the right of issue.

Both the Socit Gnrale and the Banque the Belgique soon faced serious liquidityproblems because of their imprudent investment policies. Share prices for instance

plummeted, thereby slashing the value of the banks participations in industrial

corporations.


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Table 1:Balance sheet of the Socit Gnrale and the Banque de Belgique (endof 1838, in millions of Belgian francs)

Main items Socit Gnrale Banque de Belgique

Assets

1. Cash on handa 24 1.2

2. Discounts 8 3

3. Loans and overdrafts 58 20

4. Government bonds 24 -

5. Loans on securitiesb 63 11

6. Corporate securities 40c 3

Liabilities

7. Bank notesd 27 3.5

8. Current accounts 30 12

9. Savings deposits 46 1

10. Bonds and notes 20 2

11. Capital 65e 20

12. Surplus 24 -

Source: Chlepner, 1943, p. 12.

a Includes some bank notes issued by the banks themselves. See note d.b Collateral consisted almost exclusively of shares of industrial corporations promoted by the banks and, in what

concerns the Socit Gnrale, in shares of the bank itself.c Includes some shares of the Socit Gnrale itself.d This item does not represent the notes in circulation; a part of the notes were held by the banks themselves

and is included in "cash on hand". The actual circulation was less than 20 millions.e A part of the shares, included in the assets under item 6, has not been actually issued.


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The crisis of 1848:

The February Revolution in Paris provoked a new wave of panic in Belgium. To the great anger of thebusiness community the (re)discount activities of the two big banks once again came to a halt. This timehowever it was the Socit Gnrale that faced the most severe liquidity problems. In a few weeks timethe value of its banknotes in circulation fell by more than one third ( Compte rendu de la SocitGnrale. Anne 1848).

The State guaranteed the issue of paper money up to a maximum of 20 million francs for the SocitGnrale and up to 10 million francs for the Banque de Belgique. In return, both institutions had topledge real estate, state bonds and other securities of at least the same value to the government ascollateral. Moreover, the two banks had to publish at least every 15 days or quinzaine the total amount ofbanknotes in circulation.

The law of 20 March 1848 also authorized each of the big banks to issue up to 2 million francs ofsupplementary notes for providing assistance to other financial institutions (Moniteur belge, 21 March1848). Using these funds the Banque de Belgique and the Socit Gnrale jointly granted loans to theBanque de Flandre and to the Banque Ligeoise, the two smaller Belgian issue banks. So, the

government used the big banks as financial intermediary to assist the other ones.


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Table 2: Amount of savings deposits at the Socit Gnrale, 1847-1848 (end of

month, in thousands of Belgian francs)

Stock Received Paid

1847 March 39 676

June 38 722

September 38 181

December 37 149 475 654

1848 January 36 853 649 945

February 36 392 489 950

March 34 896 98 1 594

April 33 205 569 2 260

May 25 790 98 7 514

June 21 800 64 4 054

July 17 634 88 4 253

August 15 915 137 1 856

September 15 151 172 936

Source: Compte rendu de la Socit Gnrale. Anne 1848, pp. 44-45.Note: Deposits of public authorities excluded.


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The creation of the NBB:

Two severe financial crises in a decade left deep scars. Public opinion and many politicians

demanded substantial reforms of Belgiums shaky financial system. In July 1848 the young,

dynamic Walthre Frre-Orban became Minister of Finance. He was the main leader of the

progressive liberals

in Belgium. He was convinced of the merits of free trade, but, verymuch in line with French thinking, he also saw a role for the state in economic life, especiallyin the financial sector.Frre-Orban severely criticized the Belgian system of universal banking for several reasons.First, it was unacceptable that saving deposits were used to acquire shares of corporations.Such operations not only exposed savers to very high risks, but also jeopardized the liquidityposition of the financial institutions. Second, the Socit Gnrale and the Banque deBelgique focused strongly on obtaining controlling participations in companies and thereforedid very little to promote discount credit (see also table 1). The universal banks evendistorted the normal functioning of the discount market as they gave preferential treatment tothe companies they controlled. Therefore other firms often faced difficulties to find

commercial credit. To solve this market failure Frre-Orban favoured the establishment of aninstitution that would grant discount facilities to any firm that provided the necessaryguarantees. Third, the universal banks neglected the issuing of notes.

Of course, Frre-Orban realized that the big banks would fiercely resist his ambitious plansand therefore he decided to follow a gradual approach. His priority was to set up a nationaldiscounting and issue institute on the lines of the Banque de France.

The law of 5 May 1850 and the statutes (confirmed by royal decree of 4 September 1850)define the principal tasks and structure of the National Bank of Belgium (NBB). Being a

private joint-stock company the profit motive was present in the NBBs commercial

activities. At the same time however the NBB performed tasks in the public interest, i.e.issuing banknotes and being government cashier. Therefore it was not more than reasonable

that the state supervised the NBBs activities. So the government appointed the governor and

there was a government commissioner, something exceptional in those days.

In view of the 1838 and 1848 crises it comes as no surprise that the NBBs main objective

was to maintain convertibility. The NBB was authorized to discount foreign bills of

exchange. Officially Frre-Orbans intention was to stimulate the emergence of an

international money market in Belgium(Kauch,1950).

The NBB and monetary stabilityThe NBBs discount operations took off at a dazzling speed

13. Already in 1852 the NBB

provided more discount credit than the previous record set by the Banque de Belgique andthe Socit Gnrale combined. This success encouraged the NBB to set up a network ofdiscount agencies across the country. Parallel with the expansion of the discount activities thevalue of banknotes in circulation rose rapidly. So, the NBB remedied several defects of theBelgian money market. However, the formation of deposits at the NBB remained rathernegligible. The commercial banks were rapidly accustomed to rediscount freely with theissue bank, whose rediscount policy was very liberal. Consequently they did not feel anyneed to maintain important deposits at the NBB.


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Figure 1: Discount rate and cover ratio of the NBB, 1872-1913 (annual averages,percentages)

Source: NBB,Bulletin dinformation et de documentation, vol. 25, n II-3 (1950), pp. 126 and 160-164

The NBB and financial stability

The period 1851-1870

By 1870 Frre-Orbans grand design of a financial system dominated by specialized financial

institutions had largely been realized. With a market share of 68 percent the NBB dominatedthe discount market (Kauch, 1950). Moreover, in 1865 the government had set up the Caisse

Gnrale dEpargne et de Retraite which soon played a leading role on the savings market.

Finally, the other two large financial institutions the Banque de Belgique and the SocitGnrale more than ever concentrated their activities on investment banking. Neverthelessseveral smaller institutions continued to operate as universal banks.

Figure 2: Economic slumps and financial crises, 1850-1913


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Table 3: Financial crises in Belgium, 1851-1914

YearInstitution in difficulty Financial rescue NBB Socit Gnrale

operation? involved? involved?

1857 Several Antwerp merchant Yes X

Houses

1866 Several Antwerp merchant Yes X

houses

Banque de Crdit commerciale No (X)

d'Anvers

1872- Banque de lUnion Yes X X

1873

1875- Banque de Belgique Yes X

1876 Banque Centrale Anversoise Yes X

Union du Crdit de Bruxelles Yes X X

1885- Several banks among which No

1886 Banque de Belgique and

Banque des Travaux Publics

1900- Several banks No

1901

1914 Banque de Reports, de Fonds Yes ? X

Publiques et de Dpts dAnvers

Sources: see text.Notes: Major crises of the banking system are in bold. In 1875-1876 also several smaller banks got into difficulties that were not helpedout.


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Figure 3: The NBBs discount operations, industrial production and financial crises, 1866-1899

Sources: Discount operations: NBB, Rapports annuels, 1867-1899.Industrial production: Gadisseur, 1973.

Conclusion

The creation of the NBB in 1850 marked a fundamental transformation of the Belgian financialsystem. Frre-Orban's reform clearly aimed at rendering the financial system more crisisresistant, especially by restricting the leverage of the banking sector. The NBB, which receivedthe privilege to issue banknotes, could only grant short-term credit and had strict rulesconcerning collateral. Also, the financing of the government was strictly limited. The other

banks, the Socit Gnrale and the Banque de Belgique, continued to have participations inindustry, but their financing became less short-term based as they lost the privilege to issuebanknotes. It was all part of Frre-Orban's vision of a financial system with specialized financialinstitutions


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LIST OF BANKS IN BELGIUM

list of Belgian banks:Bank Name Subsidiaries, older names Location SWIFT BIC-code

AXA Bank Antwerp AXAB BE 22

Argenta Antwerp ARSP BE 22

Banca Monte PaschiBelgio

Brussels BMPB BE BB

Bank van DePost/Banque de LaPoste

Brussels BPOT BE B1

Dexia Bank Artesia, Bacob (B.A.C.),Gemeentekrediet/Crdit Communal,...

Brussels GKCC BE BB, BACBBE BB

Europabank Ghent EURB BE 99

Fortis Bank

Generale Bank, ASLK/CGER(Algemene Spaar- enLijfrentekas/Caisse Generaled'Epargne et Retraite), Fintro, ...

BrusselsCGAK BE BB, GEBABE BB

ING Bank Bank Bruxelles Lambert Brussels BBRU BE BB

KBC BankKredietbank, Cera, Raffeisenkas,Centea, Bank van Roeselare

Brussels KRED BE BB!

Keytrade Bank Brussels KEYT BE BBRabobank.be Antwerpen/online

Volksdepositokas(VDK) Ghent VDSP BE 91

ING SECOND LARGEST FINANCIAL INSTITUTIONOF BELGIUM

Address: Avenue Marnix/Marnixlaan 24 B-1000 Brussels

Tel: + 32 2 547 21 11E-mail: [email protected]

www.ing.be


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ING Group - parent companyING Belgium SA/NV is a full subsidiary of ING Group N.V.

ING is a global financial institution of Dutch origin, offering banking, investments, life insuranceand retirement services. The ING Group headquarter is situated in Amsterdam, The Netherlands.

ING Group employs some 114,000 employees servicing more than 85 million customers in over40 countries in Europe, North and Latin America, Asia and Australia. For this, ING draws on itsexperience and expertise, its commitment to excellent service and our global scale to meet theneeds of a broad customer base, comprising individuals, families, small businesses, largecorporations, institutions and governments.

In terms of global rankings, ING is the worlds largest direct bank, one of the worlds largestsavings banks and is ranked n 86 on Interbrand top-100.

CEO and Chairman: Jan Hommen

Mission

In the financial products and services that ING offers, the customer is the focus of attention. INGaims to offer outstanding service, maximum convenience and competitive rates.INGs mission is therefore to provide customers with strong support when making their financialchoices for the future.

Strategy

In order to be able to respond to the changing preferences of the customer and to strengthen its

commercial power, INGs strategic focus lies on:

Banking, investments, life insurance and retirement services; Providing retail customers with the products they need to grow savings, manage investments, andprepare for retirement effectively and confidently; Align INGs business strategy around a universal customer ideal: saving and investing for thefuture should be easier; Continue to strengthen customer confidence and meet their needs, preserve a strong capitalposition, further mitigate risks and bring costs in line with revenue expectations.

On 9 April 2009, ING announced a change programmeunder the umbrella Back to Basics.In a nutshell, ING is implementing this programme to:

Focus on fewer, coherent and strong businesses; Ensure stable and predictable earnings and strengthen financials; Reinforce franchises in core markets; Build a stronger organisation and give a clear direction.


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Consolidated balance sheet data

(Consolidated as of 31/12/2008)Key figures

In EUR million 2008 2007 Evolution

Retail banking 1,842 1,912 -4%

Wholesale banking 1,128 1,088 +4%

Total Income 2,970 2,999 -1%

Operating Expenses -2,064 -1,964 +5%

Additions to Loan Loss Provisions -147 -36 +308%

Profit Before Tax 760 999 -24%

FTE 13,193 13,052 +1%

Banking activities

A retail bankWithin this segment, Retail Banking targets personal customers, the self-employed,professionals, and small and medium-sized enterprises (SMEs) with an annual turnover of lessthan EUR 4 million. Individuals with assets of more than EUR 1 million are handled by PrivateBanking.

Branch network

ING Belgium had 786 branches nation-wide at the end of 2008, compared to 791 end 2007. Thenumber of branches run by a self-employed agent was 230. Customers' needs are clearlychanging. They are opting for more direct forms of contact with the bank, but still always needprofessional advice.

Direct bankingTransactions carried out via direct banking channels, such as SelfBank, HomeBank and INGHomePay, are definitely on the rise and eclipse those conducted in the branch.

ING Belgium has some 827* SelfBanks where a total of 3,211* ATMs are installed. 399*Cash In/Cash Out machines allow customers to withdraw cash and deposit banknotes, whichare counted and immediately credited to the account.

HomeBankis also on a roll, with 1.7* million accounts already linked to this service.

(* End 2008)
http://www.ing.be/about/showdoc.jsp?docid=140529_en&menopt=inb|pfhttp://www.ing.be/about/showdoc.jsp?docid=140529_en&menopt=inb|pf


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The bank of tomorrowThe trend is clear: more and more customers are switching to online banking to carry out theirtransactions. It intends to become Belgium's first direct universal bank. During 2007, plans wereunveiled to move the retail bank towards the bank of tomorrow. ING Belgium intends, wherepossible, to sell a wide range of products online. This will mainly be standardised products

which customers examine and order online from home. The branch network forms a vital link forproviding personal advice. Most customers still need advice on more complex products, such asinvestments and mortgage loans, before they decide to purchase.

ING-Proxi and full-service branches

Some 552 branches will be transformed into so-called ING-Proxy branches in the next few years.The name refers to the proximity to the customers. There is no separation between theSelfBank area and the rest of the branch to encourage contact between customers and bankstaff.. Customers can access the adjoining SelfBank on any day of the week to carry out cashand other transactions.

End 2008, 138 ING-Proxi branches were up and running. The bank will retain some 249 fullservice branches. These provide a full range of services and have counters. They are also gearedtowards offering advice and sales, but are staffed by specialists who target professionalcustomers and provide wealth planning.

Personal Banking

In 2007 a new personal banker function was created within Retail banking. This departmentgives advice to customers with assets of between EUR 125,000 and EUR 1 million. A personalbanker uses the customer's risk and investor profile as the starting point, in compliance with the

European Markets in Financial Instruments Directive (MiFID) which makes the bank moreaccountable than before.

Private BankingPrivate Banking is a service targeted at high net worth individuals with invested assets exceedingEUR 1 million.Private Banking also provides active assistance and advice concerning wealth structuring,succession planning, and credit facilities.

Record BankING has two banking networks operating in Belgium: ING Belgium, a universal bank, and

Record Bank, a retail bank that is a wholly-owned subsidiary of ING Belgium. Record Bank ispart of Record Group, along with Record Credit Services and Fiducr.

As a retail bank, Record Bank targets personal customers, the self-employed, professionals, andfamily-run businesses. It does this via a network of more than 750 independent banking agents. Itoffers a range of savings, investment, credit, and insurance products. Consumer loans, mortgagesand business credit facilities are distributed not only via the banking agents, but also via otherchannels, such as credit brokers and vendors.


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A wholesale bankING Belgium approaches companies with products and services specifically geared towards theirneeds. A small firm has different financial services requirements from a large multinational. Thisis why companies are classified in different categories.

Small enterprisesThe self-employed, professionals and small firms with a turnover of less than EUR 4 million arecatered for by Retail Banking.

Medium-sized enterprisesCompanies with a turnover of between EUR 4 million and EUR 250 million are handled by theCorporates & Institutionals segment. They can contact the 20 business centres and businessdesks throughout Belgium, as well as the branch network. The bank has specialists in the fieldsof transport and logistics, agriculture and foodstuffs, real estate, etc., so that it can focus moreeffectively on the specific customer requirements in these different fields. Another primary focusincludes the family aspects of medium-sized enterprises (70% are family-run firms), such as the

transfer of the business. ING Belgium invests heavily in its international network so that it canassist customers with their foreign operations and ambitions.

ING Belgium's market share within the medium-sized enterprises segment has risen sharply overthe last two years, due to the customer focus on this segment and a professional approachcatering to their specific requirements. The unique cooperation model between Retail Bankingand the Medium-sized Enterprises department has undoubtedly contributed to the success of thebusiness.

Institutional customersGovernments, hospitals, congregations, educational institutions, trade unions, and pension funds

call for a different approach.ING Belgium aims to become the most efficient and preferred bank of this large, diversecustomer group.

Large corporatesListed companies and companies with a turnover in excess of EUR 250 million come under theinternational division within Corporate Banking. The bank is responsible for relations withcorporates not only in Belgium, but also throughout South West Europe. This responsibilityrefers not only to the relationship between ING Belgium and such companies in South WestEurope, but also to their international dealings with all ING Group entities.

Financial InstitutionsThis department's customers include banks and other financial institutions, insurance companies,

pension funds, investment funds, and the like. The products and services provided includestructured financing for parent companies and subsidiaries, the issue of shares and bonds, andexchange and interest rate risk hedging instruments.


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Among specialised departments:

Corporate FinanceING's Corporate Finance department focuses on capital market transactions, mergers andacquisitions.

Equity MarketsING Equity Markets intends to position itself as the leading player in the equity markets in theBenelux countries. To achieve this, it relies on high-quality equity analysis, good access toEuropean and North American institutional investors and first-class trading and customerservice.ING Equity Markets is also a strong player on the emerging markets and has a pan-Europeanplatform at its disposal.

Financial MarketsThe Financial Markets department handles the sale and trading of financial products, which form

a major source of profit for the bank. The department carries out assets and liabilitiesmanagement (ALM) and strategic trading on the bank's behalf. All kinds of solutions are soughtfor companies to meet their risk-hedging and investment requirements. The product rangeincludes credit, equity and interest rate derivatives, cash management, currency transactions,structured products, and bond issues. Within ING Group, Brussels is the centre of excellence forcomplex interest rate and equity derivatives, index-linked products and structured loan productsall financial instruments that are growing rapidly. For bond issues, ING Belgium is responsiblefor the syndication of international bonds of investment grade investors and for the issue ofprivate and government bonds.

Leasing activities:

Leasing activities are carried out via two companies with a common single shareholder, INGLease Holding.

ING Lease Belgium is one of the country's leading leasing companies. Companies can lease ahighly diverse range of business assets, from photocopiers and hoisting cranes to real estate, as aresult of which they avoid purchasing an asset with their own funds.

ING Car Lease Belgium aims to offer companies a full service so that staff with company carscan travel worry free. Mobility is therefore central. Even more so: ING Car Lease is complyingwith the increasingly stringent requirements currently imposed in terms of the environment andtraffic mobility.


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Real Estate:

ING operates in the Belgian real estate market via two companies that work in close collaboration with

each other.

ING Real Estate Investment ManagementING Real Estate Investment Management manages real estate projects on behalf of real estatefunds in which institutional investors hold shares. Investment Management (IM) include not onlythe ING insurance companies, but also numerous major international institutional investors suchas investment and pension funds.

20082009 BELGIAN FINANCIAL CRISES

Bank crises:Fortis BankFortis was the largest Belgian bank in early 2008, positioned mainly in the Benelux. From mid-2008 onwards, the bank began facing severe liquidity problems and its stock value began rapidlydeclining. The problem was exacerbated by the earlier acquisition of the Dutch bank ABN Amro,which had depleted Fortis' capital. Since the beginning of 2008, about 3% of the deposits stalledat the bank were withdrawn. Belgian and Dutch ministers and financial regulators met each otheron 27 September to tackle the crisis..

The following day, Fortis was partially nationalized on September 28, 2008, with Belgium, the

Netherlands and Luxembourg investing a total of 11.2 billion (US$16.3 billion) in the bank.Belgium will purchase 49% of Fortis's Belgian banking division, with the Netherlands doing thesame for the Dutch banking division. Luxembourg has agreed to a loan convertible into a 49%share of Fortis's Luxembourg banking division.

The Dutch government purchased the Dutch banking and insurance division of Fortis for 16.8billion ($23.3 billion), becoming the holder of Fortis Bank Nederland, Fortis VerzekeringenNederland and Fortis Corporate Insurance, including the part of ABN Amro held by Fortis. BNPParibas, a French bank, took a majority stake in Fortis, while Belgian and Luxembourggovernments became minority shareholders with blocking power in exchange for shares in BNPParibas. The deal does not include the main holding company, but does include the insurance and

banking subsidiaries, except for Fortis Insurance International. Dutch and Belgian shareholders'associations have requested a review of the takeover. On October 6 CBFA, the financial servicesregulatory authority for Belgium, announced that trade in Fortis shares was put on hold andpermission the resume trading will be given after Fortis has published enough information aboutthe remaining assets within Fortis.


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KBC:

On Saturday 25 October, KBC, another large Belgian bank is reported to be in talks with theBelgian government, hoping to obtain a 3.5 billion cash injection. The company, which is alsoactive in Central Europe, fears the adverse impact of the financial woes hitting that region. The

extra cash would be used to increase its risk buffer. Since the beginning of October, the sharevalue of KBC dropped by more than half as well.

Government reactionBesides the bail-outs of both Fortis and Dexia, the government also guaranteed all bank savingsup to 20,000. On Saturday 11 October, the government announced that all banks, including thesmaller ones, could obtain a similar guarantee on the condition that they are solvent and pay afee. Didier Reynders, minister of finance, also said that the government is drawing up plans toguarantee all savings up to 100,000.

Stock market reaction

The BEL-20 stock market lost more than 20% of its value during the week of 6-10 October,making it the largest weekly decline in the country stock exchange history By 25 October, the

BEL-20 index lost more than 60% of its value.

Financial crisis: Belgium seeks India's help:

Belgium alongwith the European Union have sought India's help assistance in resolving thecurrent financial crisis by helping to build a new global financial architecture.The visiting Belgian minister for foreign affairs and foreign trade, Karel De Gucht speaking at aluncheon session hosted by three apex industry bodies FICCI, CII and Assocham in Capitalon Tuesday said ; "It is the duty of the policymakers, our duty, to create a better functioning anda more equitable financial governance structure. Belgium and the European Union are ready tocooperate with India in this essential and urgent task."He informed that the European Council in Brussels agreed to the proposal that "the reformsnecessary to create a global financial system for the future must be developed and agreedinternationally through a process involving all of the key actors" and he qualified that India wasa key actor.The King of Belgians, Albert II is leading a high level delegation to India to work out areas forbilateral cooperation in trade, investment and economic delegation. Three contracts and MoUswere signed between Belgian and Indian companies. One contract was signed by Universite librede Bruxelles and India Institute of Management, Ahmedabad for cooperation in microfinance.The Indian commerce minister, Kamal Nath in response said "International Monetary Fundneeds to re-invent its role in the global financial order."Gucht said that the world has changed much aftermath Second World War with market economynow prevailing and state-run economies not just endangered species, but actually on the verge ofextinction. "As we witness wave after wave of globalization, we see in the rise of Asia atremendous shift in the balance of economic power in the world," he said and added that


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Belgium would support India's bid for a permanent seat in the enlarged United Nations SecurityCouncil which was long overdue."Our new governance structures must reflect the present day political, economic and socialrealities. At the same time they must be efficient to tackle the challenges ahead," he said.He vowed to join hands with India in fighting poverty, combating climate change and fight

against terrorism. Belgium, he said had committed to spend 0.7% of its GDP as publicdevelopment assistance. "India's National Action Plan on Climate Change and the EU'semissions reduction target of at least 20% by 2020 are ambitious but reachable goals we have setfor ourselves," he said

SECTORS

The Diamond City:

Antwerp's Diamond IndustryAntwerp, located on the Scheldt river in Belgium, has been the on-again, off-again center ofdiamond trade (diamanthandel) for over 500 years, being temporarily displaced by Bruges andAmsterdam in the 17th through 18th centuries. The history of diamond cutting in Antwerp datesback to the early 1500s, but when the Spanish took control of the city in 1585, most of Antwerp'sJewish diamond cutters fled to Amsterdam, halting diamond production.

The 'Peace of Westphalia' (Mnster and Osnabrck) in 1648 ended the Thirty Years' War, andmade it possible for some of the Jews to return to Antwerp, but they were still potential targets ofthe Inquisition [2]. During the 1700s, Amsterdam still supplied Antwerp with rough diamondsfrom India, but the Dutch kept the better stones for their own cutters, leaving the craftsmen of

Antwerp to work with second-rate raw material. This led to new cutting and polishinginnovations, in order to extract the most beauty out of the inferior rough diamonds.
http://www.khulsey.com/jewelry/history_gem_cutting_antwerp.html#h-1.http://www.khulsey.com/jewelry/history_gem_cutting_antwerp.html#h-1.


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By the end of the Napoleonic wars in 1815, Antwerp was incorporated into the Netherlands. Allreligious groups were granted equality, and the Jewish community of Antwerp was officially re-established in 1816. Antwerp's Hasidim diamantairs opened their first 'formal' diamond tradingexchange (bourses) in 1863By the mid 19th century, the diamond trade was expanding rapidly, and with the discovery of the

South African Kimberley diamond fields in 1871 (the Cape Period), Antwerp was able toreclaim its leadership role in the world diamond market after its 300 year hiatus.

Diamond Cutters c.1906 (left), Bourse (right)During WWI's 'Siege of Antwerp' in 1914, war took its toll yet again, when the "Fort ofAntwerp" consisting of the outer and inner ring of the city were breeched (map, above) and theGerman army occupied the city until its liberation 1918.

Again Antwerp's future seemed bright, hosting both the 1920 Summer Olympics (poster, above),and at the 1930 World Expo, the diamond industry figured prominently. Famous architects suchas Henry van de Velde and Le Corbusier were commissioned to transform Antwerp's skyline intoa gleaming postmodernist metropolis.

Antwerp's Diamond Depression of the 1930sAntwerp's diamond industry flourished until the American great-depression began to wash overEurope in the early 1930s. As the depression deepened, demand for diamonds and other luxurygoods went into a free-fall, and by 1934 De Beers began to stockpile diamonds, restrictingsupply in order to stabilize pricing. As the situation worsened, the Antwerp and Amsterdamdiamond exchanges cut production by 50% to limit overcapacity. Factories and trading centerswere forced to severely limit operations, cutting work-hours or eliminating jobs for some 25,000workers.

1920 Summer Olympics, Antwerp City Map c.1814


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By the end of the 1930s, the diamond industry saw a modest resurgence due to speculatorslooking for 'safe' investments in tangible commodities with a fairly stable value. However,Antwerp's good fortunes would be short lived.

Antwerp during World War II

By 1940, up to 80% of Antwerp's Jews were involved in the diamond trade. With the onset ofWorld War II in 1939, Antwerp's diamantairs could see the writing on the wall, and many tookthe opportunity to flee to Cuba, England, Palestine, Portugal, and the USA, taking as manystones as they could (up to 90% by German estimates), to prevent them from falling into Germanhands.

The 'Correspondence Office for (the) Diamond Industry' (COFDI) was created by two intrepiddiamantairs, Romi Goldmuntz and Herman Schamisso, along with the help of Antwerp's mayor,Camille Huysmans, and the British government. The COFDI registered and stored the transfereddiamonds until the war ended. Jewish diamond cutters and merchants that did not flee met theirfates at the hands of the Nazis.

Expatriate Jewish diamantairs set up Bourses (bourse van de diamant) in Tel Aviv and RamatGan, Palestine (Israel Diamond Exchange est. in 1930), and in New York city (Diamond DealersClub est. in 1931)

Diamantmuseum Antwerpen (right)

De Beers' New York advertising agency, N.W. Ayer & Son (founder of the "A diamond isforever" slogan) launched a series of advertising press releases like "Diamond, King of Gems,Reigns Supreme Despite War" and "Diamond Supply Unhurt by War," to ward off panic selling.

Antwerp's Rebirth, AgainWhen Antwerp was finally liberated on September 4th 1944, fewer than 5,000 of its original35,000+ Jewish inhabitants survived. As Antwerp was slowly repatriated, the 'CorrespondenceOffice for the Diamond Industry' began to return the hidden diamonds to their rightful owners,and Antwerp's diamond industry started to rebuild itself from the ashes of WWII.

Antwerp, The 'Diamond City'Today, Antwerp remains a global powerhouse in the diamond trade. With the thriving diamondBourses containing some 1500 diamantairs, almost 85% of the world's rough diamonds, and


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about half of the polished diamonds (est. $16 billion US), pass through Antwerp every year.There are approximately 4,000 people working in Antwerp's diamond-cutting industry.

The 'Belgian Polished Diamond Dealers Association' (BVGD) was set up as an industryassociation, and to lobby to facilitate and promote the Belgian diamond trade. The BVGD works

in conjunction with the Diamond High Council (HRD orHoge Raad voor Diamant).

Recent News from AntwerpOn October 9, 2006, the "Lesotho Promise," the largest raw diamond found in the last thirteenyears (603 carats), sold for $12.36 million at the Antwerp Diamond Center

Agriculture:Although only 3% of the active population work in agriculture, it is still an important economic

sector whose activities are spread across about half of Belgiums surface area. There is no doubtthat agriculture has a very real impact on the countrys rural landscape.

Lots of small farms, but their numbers are constantly dropping.According to the figures from the agricultural census in 2000, Belgium had 41,047 farms. Sincemost farms are family-owned, they have few employees. Often there is no-one to take over thebusiness, which is one of the reasons behind the considerable decline in the number of farms.

Regional differencesProduction conditions in the agricultural sector vary greatly from one region to the next. Theyare influenced both by the physical environment and the area of land used by farms.The north of the country (Campine, sandy region of Flanders) has predominantly sandy soil. Dueto the nature of the soil, meadows tend to dominate in these areas. However a significant amountof land is also used for growing fodder maize.In southern Flanders, where there is clayey-sandy soil, cultivation is the main land use. As theaverage area of farms is very small in Flanders, this necessitates intensive farming. For thisreason, there are many intensive cattle breeding businesses in this clayey-sandy region.Consequently, there is a wide variety of agricultural production in Flanders, including thebreeding of dairy cows and pigs in Campine and the sandy area of Flanders, along withspecialised market gardening areas.The production structure is much more uniform in Wallonia. In the loamy area, the averagesurface areas of farms are large and the soil is fertile which is why there is large-scale farming(wheat and sugar beets). In the southwest, the altitude, shallow, stony soil and more markedrelief make conditions less favourable for production. In this region, agriculture is largelycentred on cattle breeding.

Farmers incomes are, on average, lower in Flanders than in central Belgium and the southeast ofthe country. The different production conditions which vary from region to region are the reasonfor the high level of diversity in Belgian agriculture.


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Modern agricultureThe modern nature of Belgian agriculture can be seen in various ways, beginning with theincreased consumption of intermediate goods and the sizeable contribution of capital.Given the need for specific investments and the knowledge required, there is a high degree ofspecialisation in farms; this trend is on the rise.

High productivity leads to problemsAs is the case in the European Union, Belgian farmers face many problems. The average incomeof a farmer is still less than that of workers in other sectors.Intensification and mechanisation require higher investments, putting some farmers indifficulties when prices drop.

Belgium and coal:

The International Energy Agency (IEA) notes in its 2005 review of energy policy in Belgiumthat coal provides approximately 11% of the electricity generated and that, while the country has

domestic coal resources, the last coal mine closed in 1993 due to high costs of production.

The IEA notes that in terms of energy supply "apart from the introduction and growth of nuclear,the most significant trend has been a reduction in the use of coal". It also notes that "over the last30 years, coal consumption has dropped by nearly 70%, from 5.7 to 1.8 Mtoe". (Mtoe is theacronym for 'million tonnes of oil equivalent', a measure that seeks to standardise the energycontent of different fuels based on the amount of energy released by burning one tonne of crudeoil).

Coal in the Energy Generation Sector

In the decade from 1994 to 2004, there was a dramatic growth in gas-fired power generation atthe expense of coal-fired generation. The IEA notes that "electricity generated from coal hasfallen by nearly 50%" over the decade and dropped from providing 27% of total generation in1994 to just over 12% in 2004. As of April 2009, there were 5 operating coal-fired powerstations: Amercoeur, Langerlo, Mol, Rodenhuize and Ruien, all of which are operated byElectable. In 2005, the Les Awirs power plant was converted to run on 100 percent biomass, stillbeing able to run on coal as well. In 2007, the coal-fired power station of Monceau was closed.By 2014, the closure of the power station of Mol is planned.

Nuclear Phase-Out

While coal currently plays a relatively minor role in energy supply, there could be an increase in

coal consumption in the medium to longer term. In 2003, Belgium passed legislation requiringthe phase-out of nuclear power stations when they turn 40 years old. As a result, the existingnuclear power stations, which generate approximately 55% of the country's electricity, will bephased out between 2015 and 2025. Whether the role of coal in the generation sector expands ornot depends on the degree to which the replacement of nuclear capacity is met by energyefficiency, power imports and an expanded role for gas.


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The IEA also notes that while national CO2 emissions have grown by 11% since 1990,"emissions from coal dropped by more than 40 percent due to fuel switching from coal to naturalgas for electricity generation, as well as to restructuring in the iron and steel industry...Emissions from coal now account for a fifth of CO2 emissions."

Proposed Coal-Fired Power Stations

Antwerp Power Station, Flanders: In November 2007 E.ON Kraftwerke announced plans tobuild a 1,100 megawatt power station at a cost of 1.5 billion euros. In its announcement, E.ONstated that it had "started the permitting process by submitting the MER-Kennisgeving. Inorder to being able to start commercial operation in 2014, E.ON Kraftwerke hopes to receive allnecessary permits in the second half of 2009." E.ON has stated that they aim to beginconstruction in 2010.

One report on the proposed project stated that "Antwerp was chosen

because the installations on the right bank of the River Scheldt can be supplied with coal ships ofup to 130.000 tonnes. The new power plant will run on 2 million tonnes of coal per year. Thismeans that coals will be shipped in twice a month."

Industries:The industrial sector currently accounts for slightly more than a quarter of all jobs and almost30% of added value. How it is structured and where it is located reflect both the influence of thepast and particularly important recent changes that have taken place since the late 1950s. Theseinclude structural changes, regional changes and also changes in the sites chosen by the risingnumber of business parks. The energy sector has also changed a great deal.

Diversified industrial structureMost branches of activity can be found in Belgium: energy, the manufacturing industry andconstruction/civil engineering.

Among the different manufacturing branches, some have been in Belgium since the 19th centuryor even before: textiles/leather/shoes/clothing, food/drink/tobacco products, metallurgy,metalworking, machine manufacture, paper/printing and, to a certain extent, chemicals.Others developed in the 1960s, ushered in by strong economic growth and the mass arrival offoreign investments. The positive economic climate was particularly beneficial for the chemicalsindustry, wood and furniture, metalworking, electrical machinery and equipment, and themanufacture of transport equipment.Major regional contrastsEmployment density in industry is fairly varied. The greatest concentration of jobs is found inthe large urban areas and in two regions: central Flanders and the Northeast. In contrast, thewhole of the south of the country, the entire central Walloon area from Charleroi to Lige and

the eastern extremity (VerviersEupen) are not very industrialised at all.

Today, Antwerp is the countrys leading industrial hub. The province of Antwerp is home to halfof the chemicals sector (refineries, petrochemicals, photographic products, pharmaceuticalproducts, etc.).Brussels is the second largest industrial hub; its structure is quite logically geared to consumergoods. However it has clearly declined since the 1960s as a result of competition from thetertiary sector for land and workers as well as new requirements from companies in terms of


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transport and surface area. But the main reason for the decline is the homogenisation of space,making the proximity of consumer markets less important.Ghent has a structure divided between light industry, for which it is a traditional centre, andheavy industry mainly found along the Ghent-Terneuzen canal.Charleroi and Lige retain an industrial flavour but their structure continues to be influenced by

the traditional sectors of heavy industry.The two large industrial areas not within an urban area are in central Flanders, the Kortrijkregion and the Northeast. The Kortrijk region specialises in light industries which demonstrate adynamic network of SMEs under local management. In contrast, the Northeast is mainly madeup of large foreign companies which have benefited from the sizeable labour force available inthis area.

Structural and regional changesThere have been three periods of major upheaval in industry.Business activity increased from 1958 to 1974, a period of strong economic growth and massinflux of foreign capital, developing in particular in the Northeast, central Flanders and the

Antwerp region. There was stagnation in metropolitan areas and the decline in the old Walloonbasins became more pronounced.The period between 1975 and 1985 was a time of crisis affecting most sectors and most regions.Since 1985, the economy has been recovering, with selective development particularly favouringnew economic areas: the diamond formed by Antwerp-Ghent-Brussels-Leuven, Walloon Brabantand some peripheral Walloon areas such as eastern Lige province and southern Luxembourgprovince.There are many reasons for these upheavals but they are all linked to recent technologicaldevelopments and increased international competition.Today, too, companies face many challenges arising from major changes in production methods,saturation on many markets and restructuring in many sectors.

Changing industrial sitesIndustries used to be set up where the raw materials were located, along railway lines orwaterways, even in urban areas. The spaces now used by industries are located along majortransport infrastructures (ports, and especially motorways and roads), most often on the edge oftowns and metropolitan areas. Industrial parks have sprung up everywhere.

For the last ten years or so, many industrial parks have become heavily populated by tertiarysector businesses, making them truly business parks.

Changes in energy

A former coal-producing country, Belgium shut down 120 coal mines between 1957 and 1992.As a result, the country is largely dependent (up to around 80%) on external supplies. Its primaryenergy sources are oil (approx. 40%), natural gas (approx. 22%), uranium (20%) and coal (17%).Hydroelectricity accounts for just 1%.This structure has changed greatly over the years. The share of oil has decreased, while theshares of natural gas and coal have increased (by reconverting power stations). The share ofnuclear power has been increased.Since the late 1980s, given relatively low oil prices, oil and gas increased to the detriment of coal


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(which was also inexpensive but more restrictive). In parallel with this development, the share ofnuclear sources in power generation dropped: the number of stations did not increase and newCCGT (combined-cycle gas turbine) power stations were commissioned using natural gas. Inaddition since 1995, there has been a move towards shutting down the small (between 100 and125 MW) conventional thermal power stations.

Insurance:

Innovation is considered as the key instrument in the Belgium insurance. A high emphasis is being put

on the non-life insurance in the country in the recent years.

Better services and improved products rendered by the insurance companies in the Belgium from time

to time is largely accepted by the peoples in the country.

The Insurance Supervisory Authority Commission (Bancaire Financiere et des Assurances) has been

acting as the regulatory body in Belgium Insurance.

Belgium Insurance Companies

The list of insurance companies in Belgium including both life and non-life insurance on the basis of their

gross written premiums are as follows:

Belgium Life Insurance Companies

Leading life insurance companies in Belgium are as follows:

Ethias Life Insurance Les Assurances de Fortis Banque Insurance AXA Belgium Insurance Fortis AG ING Insurance AGF Belgium Insurance Delta Lioyd Life InsuranceBelgium Non-Life Insurance Companies

Major Non-Life Insurance companies in Belgium are as follows:

AXA Belgium Insurance Fortis AG Insurance KBC Assurances ING Insurance AGF Belgium Insurance DKV Belgium Insurance


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Investment opportunities:

Strategically located in the center of Europe, Belgium contains a powerfulinfrastructure and serves as residence to the main decisional bodies of the EuropeanUnion. Equipped with these outstanding features, Belgium offers prime opportunities

for companies seeking optimal locations for distribution activities or a Europeanheadquarters.Moreover, it should be stressed that companies seeking locations for high technologymanufacturing or assembly can count on a multilingual, skilled labour force and accessto markets via excellent transportation links.Belgium's numerous highly developed research parks form a natural environment forthe establishment of high-tech companies.For companies seeking a greenfield site, Belgium also offers the critical components ofavailable labour, incentives, proximity to European markets and a qualityinfrastructure.

Finally, Belgium is becoming a first-rate international financial marketplace. Theforeign direct investment environment is changing, trending towards financial andtrade-related services, but manufacturing still remains important. Therefore, strategicalliances, joint ventures and acquisitions are becoming increasingly important.

Perhaps the most important incentive is Belgium's long-standing tradition ofwelcoming foreign investment. The general principle is one of global equity: nodiscrimination is made between domestic and foreign companies.All financial investment aid is granted by autonomous regional authorities. The level ofgrants available in Brussels, Flanders or Wallonia varies slightly, depending upon


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factors such as employment stimulus, technological composition and desirability of theprojected investment in the region.

Furthermore, additional financial incentives are available in some areas with thesupport of EU structural funds.

As to fiscal measures, they include a.o. exemption from tax prepayment on realproperty income, the possibility of accelerated depreciation, investment deduction, etc.

Tax credits and personal tax concessions for expatriate personnel are also granted.

Labour incentives are provided through a reduction in social security contribution,training and job creation measures on the federal and regional levels.

Sme:The GDP growth was only 1.2% in 2005 whereas it was 2.9% in 2004. The IMF forecasts a 1.9%

growth in 2006. This moderate growth is the consequence of a limited domestic demand as wellas a weak external demand for Belgian products due to the French, German and Dutch economicslowdown. The Belgian economy strongly relies on its European trade partners' economicalsituation given that it realizes 75% of its exports inside the dollar zone. Furthermore, Belgianexports competitivity suffers from the strong dollar appreciation. The labour market has beendeteriorating for two years and the unemployment rate has gone up from 8% of the activepopulation in 2005.

The Belgian agricultural sector provides 1.32% of the country's GDP and plays a much lesserrole in its economy as compared to other European countries. Animal breeding and dairyproduction are dominant activities. The agricultural policy comes under the domain of Regions.

The industrial sector provides 26.48% of the GDP. Among the main industrial activities are theproduction of semi-processed and semi-finished goods (steel and non-ferrous material, chemicalproducts) and textile. The biotechnology sector is fast developing. The rest of the economicactivity is widely dominated by the service industry which represents 71.8% of the GDP andemploys 72.19% of the active population.

Belgium has a very open economy, one of the world's first destinations for foreign investments.The three top investors are Luxemburg, the Nertherlands and France. Belgium's top three importpartners are Germany, the Netherlands and France. The country mainly imports chemical andpharmaceutical products, machinery and mechanical appliances, and transport material. The topthree export partners were Germany, France and Netherlands. The exportations mainly concern

chemical products, transport material and machinery, and mechanical appliances.

Documents

Global Financial System Belgium