1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Luxembourg - addressing new challenges in a major financial sector

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).

English

Keywords: taxation, risk, bank, financial regulation, insurance, financial markets
JEL: G21: Financial Economics / Financial Institutions and Services / Banks; Depository Institutions; Micro Finance Institutions; Mortgages; H24: Public Economics / Taxation, Subsidies, and Revenue / Personal Income and Other Nonbusiness Taxes and Subsidies; G28: Financial Economics / Financial Institutions and Services / Financial Institutions and Services: Government Policy and Regulation; G18: Financial Economics / General Financial Markets / General Financial Markets: Government Policy and Regulation; 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; H25: Public Economics / Taxation, Subsidies, and Revenue / Business Taxes and Subsidies; G15: Financial Economics / General Financial Markets / International Financial Markets
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