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Luxembourg - addressing new challenges in a major financial sector

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  • Eckhard Wurzel
  • Damien Azzopardi

Abstract

Over the last two and a half decades, Luxembourg’s financial sector emerged as a leading international hub for asset management and investment funds and became a key contributor to growth. Diversification into new areas of financial asset management is continuing. However, changing financial market regulation in Europe, increased international transparency requirements for banking and heightened international competition pose challenges. Moreover, the financial sector has reached a size where its contribution to the economy’s overall growth might diminish. Maintaining sound framework conditions is important for further diversification in the financial sector, building on Luxembourg’s existing comparative advantage and investors’ trust in its economic stability. Regulators should ensure financial intermediaries maintain strong capital ratios to address potential financial market shocks from abroad and real estate risks in the domestic economy. Assessment of systemic risks should be based on a framework that accounts for the various linkages between the banks and the other relevant financial market actors, notably investment funds. Given that the bulk of the banks in Luxembourg are affiliates of foreign bank groups, the authorities should seek clear procedures that govern the (cross-border) resolution of large banks in bad times. Moreover, implementation of the remaining steps in upgrading the tax transparency regulations Luxembourg has committed to can increase incentives for banks to further refine their business models, benefitting Luxembourg’s financial sector in the medium term. This Working Paper relates to the 2015 OECD Economic Survey of Luxembourg (www.oecd.org/eco/surveys/economic-survey-luxembourg.htm). Luxembourg - adresser des nouveaux défis d'un majeur secteur financier Pendant les vingt-cinq dernières années, le secteur financier luxembourgeois est devenu une plateforme internationale de premier plan pour la gestion d’actifs et les fonds de placement, ce qui a grandement contribué à la croissance. La diversification dans de nouveaux domaines de la gestion d’actifs financiers se poursuit. Toutefois, l’évolution de la réglementation des marchés financiers en Europe, les obligations accrues de transparence internationale en matière bancaire et l’intensification de la concurrence constituent des défis. En outre, le secteur financier a atteint une dimension telle que sa contribution à la croissance globale de l’économie risque de s’amenuiser. Le maintien d’un cadre sain conditionne la poursuite de la diversification du secteur financier, à partir de l’avantage comparatif actuel du Luxembourg et de la confiance des investisseurs en sa stabilité économique. Les régulateurs doivent veiller à ce que les intermédiaires financiers aient des ratios de fonds propres élevés pour qu’ils puissent faire face à l’éventualité de chocs d’origine étrangère et aux risques liés au secteur immobilier national. L’évaluation des risques systémiques doit prendre en compte les divers liens qui existent entre les banques et les autres acteurs des marchés financiers, notamment les fonds de placement. La plupart des banques opérant au Luxembourg étant liées à des groupes étrangers, il incombe aux autorités de chercher à établir des procédures claires pour organiser la résolution (transfrontalière) de grandes banques en période de crise. En outre, l’application des dernières mesures d’amélioration de la transparence fiscale auxquelles le Luxembourg s’est engagé peut inciter les banques à affiner encore leurs modèles économiques, ce qui favorisera à moyen terme le secteur financier luxembourgeois. Ce Document de travail se rapporte à l’Étude économique de l’OCDE de Luxembourg, 2015 (www.oecd.org/fr/eco/etudes/etude-economique-luxembourg.htm).

Suggested Citation

  • Eckhard Wurzel & Damien Azzopardi, 2015. "Luxembourg - addressing new challenges in a major financial sector," OECD Economics Department Working Papers 1239, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1239-en
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    File URL: http://dx.doi.org/10.1787/5jrzxgz5tvwj-en
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    Keywords

    assurance; bank; banques; financial markets; financial regulation; insurance; marchés financiers; risk; risque; réglementation financière; taxation; taxation;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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