Dutch credit-crisis committee points finger at everyone

The Dutch parliamentary committee that investigated the causes of the credit crisis published its findings on Monday, arguing for stricter oversight of the banking sector.

By Egbert Kalse and Daan van Lent

All share in the blame and everybody should learn from their mistakes, was the conclusion of a special Dutch parliamentary committee after it finished its inquiry into the origins of the credit crisis. The committee, composed of Dutch parliamentarians of all stripes and chaired by socialist Jan de Wit, found no single party or person could be held accountable for the financial disaster. Instead, according to the committee, a collective blindness had taken hold and responsibility was shared widely. Based on these findings, it is unlikely heads will roll in the Netherlands.

The inquiry could yet have a sequel, though, as political reactions to the report have shown a majority in parliament wants to conduct a more thorough investigation into the matter, granting a subsequent committee the power to question people under oath.

Few surprises

Monday’s proposals to improve the financial system offered few surprises and differed little from measures proposed abroad. De Wit’s committee suggested separating bank's risky business operations from their consumer banking divisions, improving the deposit insurance system, cracking down on certain compensation practices, raising capital reserves and granting additional powers to a pan-European oversight agency. All measures that have been proposed before elsewhere.

Implementing them, however, would require a far-reaching change in the behaviour of politicians, bankers and regulators. According to the committee, parliament itself also needs to draw lessons from the crisis.

The Netherlands followed global trends towards liberalisation and deregulation without hesitation because it wanted its banking sector to play a role of international significance. According to the committee, parliament should have been more critical in this process and kept an eye out for undesirable developments. Instead, parliament failed to conduct its own research and develop expertise, leaving it at the mercy of financial sector lobbyists. When international regulations were introduced, the Dutch parliament was not vigilant enough and failed to challenge the cabinet on the matter.

Political apathy gave banks plenty of room to manoeuvre, which they took full advantage of. Meanwhile,banks took too many risks and tried too hard to please their stockholders.

The committee warned that banking should not now become too sternly regulated. It argued in favour of the self-regulation code introduced by the Dutch banking sector last year which has since been written into law, and also stated the blatantly obvious, that banks need to improve their risk management.

Law should support self regulation

The committee also suggested that individual banks should separate their consumer banking parts, responsible for savings, and their risk-taking parts, which would be allowed to trade on financial markets at their own risk. The committee reported that these measures could best be realised in international concert.

If this proves impossible, the Netherlands should go its way alone, the committee stated. It is very uncertain whether this can be effective ,though. Paradoxically, the committee concluded that the international financial sector has become so closely intertwined that Dutch banks are quickly affected by problems elsewhere.

By arguing for increased regulation, the committee is effectively looking to place more responsibility on the shoulders of oversight agencies, which, it also argued, fell short in the past. The committee criticised the Dutch central bank, DNB, by saying it had a maladaptive culture. The DNB focused too much on individual institutions and showed too much understanding for the banks it oversaw, failing to use all the legal means it had at its disposal. The committee found the DNB could have cracked down on the Icelandic savings bank IceSave, sooner for instance.

The committee said it had been "shocked" by its finding that national interests had undermined trust between oversight agencies from different countries. The committee argued those will have to become more transparent, since trust alone has proven an insufficient foundation for cooperation.

All political parties have come out in favour of the committee's recommendation to introduce stricter regulations. Even De Wit's critical remarks regarding the roles played by the finance ministry and the DNB in the takeover of Dutch bank ABN Amro and the IceSave debacle can count on widespread support.