The Belgian financial landscape has been transformed over the past two decades and now consists of a relatively large, well-functioning and internationally integrated financial sector contributing directly and indirectly, through its intermediary function, to long-term economic growth. One of the financial system’s key characteristics is the concentration of activity among a small number of financial conglomerates that offer a combination of banking and insurance services. Although this mix of activities may contribute to financial stability, it has led to a widespread commercial practice of crossselling, possibly dampening competitive pressures. Competition may also be hindered by regulatory policies in the markets of mortgage loans and consumer credit; although these policies aim at protecting consumers against the risk of over-indebtedness, they risk having the unintended consequence of increasing entry costs for new providers, thus hindering competition and innovation and hurting consumer interests. Besides regulatory policy, tax policy has also been used to shape the development of the financial system. Tax credits are granted to influence investment and borrowing decisions, notably to stimulate home ownership, encourage saving and stimulate private pension accounts. International experience suggests that such tax expenditures, while influencing the allocation of saving, have no obvious impact on the overall level of saving. However they result in significant tax expenditure and necessitate higher tax rates elsewhere. Reforms recommended in this paper would help to make a well-functioning system perform even better.
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