Another bank has failed, but don’t worry – it is foreign. It is the DSB Bank of the Netherlands, a small and relatively new bank. I knew vaguely it existed and was intrigued by the radio news I heard as I drove into the country last Thursday as DSB was going through its last spasms. It finally died on Monday. This bankruptcy provides an interesting case and I hope it does not disappear into the financial history books as a small and inconsequential event, as it shows the weaknesses of regulation.
DSB was owned and operated by a flamboyant ex-policeman, who was clearly never accepted by the banking fraternity. Whether his bank was good or bad I will leave to the experts. What puzzles me is that it went bust within four years of obtaining its banking license and being regulated by the Dutch version of the FSA and the Central BAnk. It also provided full audited accounts, the last ones of which were signed off on 29th June 2009.
The stories of the cause of failure are varied. They range from the owner being a crook to the banking establishment pushing him out. There is lots of evidence that everybody is right, but one thing is clear: there was more than adequate regulation but nobody looking at what was going on. If the owner was a crook, how did he get a license one might ask? If the bank was pushed, how could that be allowed? It shows a number of people asleep at the wheel.
Once he had the license, in the tense market conditions of the last two years, why did nobody take a closer look at the books. All banks were struggling and one that played in the grayer parts of the market needed a closer look. Especially as it remained profitable. The auditors, a firm called Ernst & Young, gave the accounts a clean bill of health. The only caveats were the standard, boiler plate, ‘please keep me out of court if something is wrong’ ones. In other words, if the bank was rubbish, as many are suggesting, then the audit report was worth a loss of an estimated 1.5 billion Euros.
So the procedures were there but the regulators implementing those procedures were simply out to lunch with ‘real bankers’, the ones who cost us hundreds of billions, like ABN or Fortis. The alternative is that the bank was in fact fine, but the banking fraternity, most likely led by such fine specimens as the aforementioned ABN or Fortis, did not like this flamboyant individual changing things in a way that ‘is not done’.
One of the rumours is that the owner withdrew millions for personal use. Well isn’t that what real bankers do, or have I miss interpreted the latest headlines on bonus payments? At least he wasn’t taking tax money to pay the bonuses. He even invested in a Cessna! How embarrassing as we all know a real banker only flies Lear Jets. He obviously lacked style and that is not done if you want to be a real banker.
Is there then a real possibility he was pushed? I do not know and I am sure I will never know the real truth. What I do know is that bankers should start looking at themselves and their behaviour towards businesses, borrowers, depositors and investors and stop looking over their shoulders at who they can trip up on their way to cash their bonus cheques – rest assured, if DSB was tripped up it was by the people with the big bonus cheques and not by the people cashing your wage cheque. No regulation would protect a bank from that power as we in Enterprise Britain have found out to our own cost.
Oh, and an interesting aside is to look at the non-executives on the DSB Board. It includes experienced bankers and until recently Mr Zalm, the new Chairman of ABN Bank. Until January 2009 he was even CFO of DSB Bank. Presumably the bonuses are bigger at ABN.