The Dutch financial scene has been shaken over the past two weeks by what can be characterized as a classic bank run. Events at privately held DSB Bank, with assets of about EUR 8bn, began to unfold some two weeks ago as commentators and politicians expressed dismay at its predatory lending practices. Next, lone ranger Pieter Lakeman, who is notorious for initiating proceedings against Dutch listed companies whom he believes have incorrectly stated financial results, publicly called for consumers to withdraw their savings deposits from the bank - which they did en masse. Lakeman, acting on behalf of consumers who feel robbed by DSB's predatory lending practices, argued that this would offer consumers the best chance at redress - a highly dubious proposition that will be tested over the next couple of months as DSB is liquidated.
The Dutch Central Bank then tried to persuade a judge to take the bank into administration. While the judge refrained from granting the request in light of DSB's showing that it was still solvent, the filing of the request was leaked, and while the news spread (through Twitter!), consumers hurried to withdraw even more funds - some EUR 600m in 12 days. Within 12 hours, the judge was obliged to grant the request to put DSB into receivership.
Over the past week, Dirk Scheringa, the bank's founder and sole owner, made desparate efforts to strike a deal with the major Dutch banks (ING, ABN AMRO, Fortis, Rabobank) to save DSB. These decined to step in, as did Texas private equity player Lone Star Capital. All candidates where presumably put off by the uncertain magnitude of the claims to be filed in connection with DSB's predatory lending practices (French bank Dexia learned this lesson in the past) and the Dutch government's refusal to provide a guarantee of some sort. Exit DSB, which clearly wasn't considered too big to fail.
The episode is likely to have ramifications in the following areas, and over here at TDT we'll be monitoring events closely:
- Supervision: where were the Dutch Central Bank and the Financial Markets Supervisor (AFM)?
- Governance: how did the dual role of Dirk Scheringa, owner and CEO, impact the bank's governance?
- Regulation: what will be the impact on calls to introduce a Dutch equivalent of the US special resolution regime?
- Politics: who knew what and when, and what did they do about it?
- Lakeman's position: will he face the consequences for nearly single-handedly causing a bank run?
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