1. Measuring the Effects of Deregulation in the Banking
Sector: Some First Results on the Share Portfolio
Rudi Acx
National Bank of Belgium, Head of Financial and Economic Statistics,
boulevard de Berlaimont 14,
B - 1000 Brussels - Belgium
Tel : 32 2 221 24 03; Fax : 32 2 221 32 30; E-mail : rudi.acx@nbb.be
Catholic University of Brussels ( KU Brussel)
1. Introduction
The process of deregulation is in essence a judicial determined development. The most recent
wave of deregulation in the European financial sector started during the eighties, and was
triggered and sustained by several European Directives envisaging a competitive financial
sector through the creation of the necessary conditions for a level playing field. The
deregulation takes different forms. This contribution deals with one of them in the banking
sector.
The access to the market which been enlarged on both the supply and the demand side of the
market. Companies active in one former segment of the market are now allowed to act in
most of the remaining segments of the financial sector, which led to despecialisation. In
countries where a net distinction exists between portfolio-companies and deposit taking
companies, as f.i. in Belgium, the latter type of companies became entitled to increase and to
diversify their share portfolio. The paper presents, on empirical grounds, to what extend the
Belgian credit institutions have adapted the size and composition of their portfolio in shares.
2. The Detention of Shares by the Belgian Credit Institutions :
Legislation and Datasources
The Banking Law of 1993 introduced a new approach to the holdings of shares by the
credit institutions established in Belgium. New conditions were described under which the
credit institutions could hold different kinds of shares in other companies, whether it is as
trading -, investment- or fixed financial financial asset (participation) instrument. The law
foresees three categories:
- Shares which may remain in portfolio on a temporary base ( up to 2 years). It concerns
shares, which are intended to be offered to the public, or shares, which serve as a guaranty for
outstanding unpaid claims.
- Shares which may be kept in portfolio without any restriction. It concerns shares issued by
other credit institutions, insurance companies, investment firms, companies active in financial
transactions and companies that render services to the credit institutions.
- Shares which can be part of the assets of the credit institutions but limited to a certain
amount. It concerns shares in the capital of companies other than those mentioned in the
previous part. Apart from quantitative constraints on the individual shares, this group of

2. shares may not exceed 35 pct. of the total own funds of the credit institution holding the
shares.
The last category constitutes the most important change to the regulation on share holdings by
credit institutions. A comparison is made between the situation at the end of 1993 and 1998.
The analysis is based on the detailed nominative description of the portfolio composition,
which must be communicated to the monetary and prudential control authorities each quarter
of a year. On the base of these information, which include also the ISIN code, the National
Bank of Belgium has established a database in which, a.o.variables, the institutional sector is
attributed to each individual share.
3. Composition of the Share Portfolio of the Banks
The total assets of the banks established in Belgium amount to around 745 000 million LQ
1998. Interbank claims and claims on clients represent nearly 66 p.c. of the total. Securities
of the government sector constitute another 20 p.c. The balance consists of other securities
(7 p.c - mainly long term), fixed assets (2 p.c.) and miscellaneous assets (5 p.c.). The shares
are located in the items ’Other securities’ and in the ’ Fixed financial assets’.
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Period Belgium Rest of the world All countries Total
Financial Institutions ( FI) non FI Total non
FI
FI Total FI (1) non FI(1)
Year Insurance Banks Other FI Total
Participation’s in pct. of total share portfolio
1993 100 81 63 72 87 74 40 68 67 69 69 67
1998 100 84 36 70 83 71 10 89 82 80 46 74
Horizontal breakdown
Participations
1993 2,6 9,0 12,1 23,7 4,3 28,0 1,1 68,1 69,2 91,8 5,4 100
1998 11,6 18,9 7,2 37,7 4,9 42,5 0,6 54,7 55,3 92,4 5,5 100
Shares
1993 0,0 4,3 14,3 18,6 1,3 19,9 3,5 64,7 68,2 83,3 4,8 100
1998 0,0 10,5 37,1 47,5 2,9 50,4 15,6 20,4 36,0 67,9 18,5 100
Total
1993 1,8 7,4 12,9 22,0 3,3 25,3 1,9 67,0 68,9 89,0 5,2 100
1998 8,6 16,8 14,9 40,2 4,4 44,6 4,5 45,9 50,3 86,1 8,8 100
Evolution in p.c.
Participations
98/93 700 284 8 189 108 177 -3 46 45 83 84 82
Shares
98/93 0 209 227 223 181 220 470 -60 -33 3 391 26
Total
98/93 699 270 89 198 117 188 282 12 20 58 178 64
(1) Non adding up to 100 p.c. is due to shares which could, up to now, not be attributed an unambigious
institutional sector code.
The total value of the share portfolio of the credit institutions rose from 7 339 million LQ
1993 to 12 004 million LQDJURZWKRISF7KHFUHGLWLQVWLWXWLRQVLQFUHDVHGWKHLU
participations with 82 p.c. representing three quarters of their total share portfolio, compared
to two-thirds 6 years earlier. The bulk, around 92 p.c., of the participations is oriented
towards financial enterprises and has not undergone a substantial change over the period under
review.

3. The absolute amount of the participations in foreign financial institutions remains higher than
the participations taken in domestic financial institutions. Over 80 p.c. of the participations in
foreign financial institutions are with institutions located in countries belonging to the
Eurozone. Although, contrary to the general idea of internationalisation, the participations in
domestic financial enterprises grew much faster than those in non domestic financial
enterprises. Within the domestic financial institutions the insurance companies and the credit
institutions became those with the largest attraction. This reflects of course the idea of
bankinsurance respectively the co-operation tendency without merging. Specific for the shares
of Belgian insurance companies held by the credit institutions is the fact that they all concern
participations, even for small amounts, and quasi none are kept in portfolio for investment or
trading purposes. Although bankinsurance is prominent present in Belgium, this can’t be
traced in the portfolio of the banks. This is due to the fact that, apart from some individual
cases, the insurance companies took participations in credit institutions. But the main reason
lies in the creation of large financial services companies in which participations and cross
participations are centralised by the holding controlling the financial services company.
Something similar holds for the participations in foreign financial institutions.
The relative part of participations in the other domestic financial institutions diminished over
time. However the banks keep substantial amounts of shares of these institutions as
investment or - to a lesser extent - for trading purposes.
4. The Shares of Non-Financial Enterprises
Regarding the shares of non-financial enterprises, one can observe that the amounts invested
in that kind of paper remains rather modest : 1 058 million LQDJDLQVWPLOOLRQLQ
1993. This doubling of the value is higher than the increase of the total share portfolio over
the period under review, but still represents only 9 p.c. of the total share portfolio in 1998,
coming from 5 p.c. in 1993. In 1998 the total shares held from non-financial institutions were
equally divided between domestic one’s and foreign non-financial enterprises. In 1993 there
was still a relative preference for investment in shares issued by domestic non-financial
enterprises. The objective of the investment in these companies is quite different between the
domestic and the foreign one’s. Credit institutions increased substantially their participations
in domestic non-financial companies while their modest participations in foreign non-financial
enterprises have been reduced. For these last they prefer to keep them as an
investment or for trading purposes. The holding of shares in the foreign non financial
enterprises on the other hand are mainly intended as long term investments or for trading.
A more detailed view on the evolution over the period 1993-1998 on this kind of shares in the
portfolio of the banks is provided by Figure 1.
During the period 1993-1997 the participations constituted the larger part in the portfolio.
Only in 1998 the part of the shares outweighted that one of the participations. The
participations in domestic non-financial enterprises remained rather stable over the period
1995-1998, after a upward swing in 1994. They represent the largest part of the portfolio
during the period 1993-1997. The relative importance of participations in foreign enterprises
was stable at a low level over the whole period under review, as did the part of shares, other
than those kept as a participation, in the foreign non- financial enterprises. The shares of
foreign non-financial enterprises held by the banks surged from 1997 on and forms in 1998
the largest part of the share portfolio of the banks.

4. 93 94 95 96 97 98
1200
900
600
300
0
Total part.
Total shares
93 94 95 96 97 98
1200
900
600
300
0
Foreign part.
Dom. part.
Foreign shares
Dom. shares
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5. Conclusions
The interpretation of the above-mentioned results is not that straightforward and should
therefore be interpreted with caution. First of all, there is the problem of valuation. In the case
of investment and trading the shares must be valued against the market ( or a market related )
price, while the participations can be valued against historic purchase price. This leads to an
underestimate of the part of participations in the total share portfolio of the credit institutions.
Secondly, the ongoing mergers do destruct oustanding participations and thirdly aquisitions of
credit institutions by the same holding company can lead to a drain of the cross holdings of
shares from the portfolio of the concerned credit institutions to the common holding company.
Both last mentioned phenomenons reduce the oustandings of shares held by credit institutions.
For a correct assessment, corrections taking account of these shifts are needed.
As a preliminary conclusion on the reaction of the credit institutions to the major change in
the Banking law, one can state that the credit institutions did not exploit so far the
possibilities offered by the new law as the proportion of the shares issued by non-financial
enterprises do represent only roughly 3 p.c. of the own funds, which is still far away from the
legal upperlimit of 35 p.c. Providing this rather low representation of non-financial
enterprises’ shares in the banking portfolio suggests a non-interest of the banks in that kind of
shares, over the last 5 years.
RESUME
La loi belge a donné la possibilité aux banques de détenir des actions des entreprises non
financiers. Les résultats, basés sur les relevés détaillés communiqués par les banques,
montrent que les banques ne sont pas tellement intéressés par ce type d'actions. La mesure de
l'impact est néanmoins influencé par les règles comptables, valeur historique contre valeur du
marché, et par les constitutions institutionnelles des groupes de services financiers.