DSB Bank allowed to fail

Yesterday something very unusual in banking politics happened - a bank was allowed to fail. The DSB Bank, a small savings bank was allowed to collapse by the Dutch government. The bank entered administration last week after savers co-ordinated a bank run to threaten the bank's solvency. The run was organised by DSB's mortgage customers who were disgruntled with the bank's policy of linking expensive, and often unnecessary insurance policies with its mortgages, which were forced onto customers, making a €1.6bn profit. A US company, Lone Star Funds, were interested in buying the remains of DSB but failed to reach agreement with the bank's Chief Executive Dirk Scheringa. Scheringa also approached the Dutch government for €100m's worth of aid, but finance minister Wouter Bos refused, arguing that DSB's proposed business model would lead to the loss of these funds in addition to the funds already lost. The main Dutch clearing banks are responsible for guaranteeing deposits up to €100,000 in the Netherlands, and will pay the remaining savers €3,000 each, but did not want to buy DSB as its loan losses and potential legal claims were considered too great.

Bos also noted that the collapse was not related to the credit crunch, and that an independent investigation into the collapse of DSB was set up. Little is clear about DSB and its practices, as it was privately owned by Dirk Scheringa. Scheringa established the bank in 1975, originally as a financial consultancy known as Buro Frisia. The company expanded aggressively through aquisitions, gradually building up a portfolio of financial businesses. Controversially, in 1999 a planned IPO was aborted by Scheringa just hours before the start of trading due to a disagreement with the banks over the proposed share price. Scheringa chose instead to keep the company private, raising finance via subordinated loans instead. In 2005 the company was granted a banking license by the Netherlandsche Bank, which operates as the Dutch central bank. Scheringa also owns the football club AZ Alkmaar, the reigning Dutch champions, and an art museum, the Scheringa Museum for Realism, in Spanbroek, North Holland. It seems likely that Scheringa's financing of these assets, among others, came from DSB Bank funds. No doubt the inquiry into the bank will shed some light on the business model used by Scheringa to run the bank, which appears to have been controlled too closely by him. This blog will return to this story when more is known - it will be interesting to see if any interesting conclusions regarding the ownership of banks and whether it should be dispersed will be reached by the inquiry.