Final report ‘Credit Lost II – Taking stock’ presented

11 April 2012

The Committee of Parliamentary Inquiry into the Financial System presented its final report ‘Lost Credit II - Taking stock’ today. The Chair of the Committee, Jan de Wit, presented the final report to the President of the House of Representatives, Gerdi Verbeet.

Main conclusions
In its final report, the Committee concludes that the Dutch authorities made major mistakes in the billion-euro interventions involving Fortis/ABN AMRO and ING. Both financial institutions ran into serious problems in the autumn of 2008 through their own actions, thereby jeopardising financial stability in the Netherlands. The Ministry of Finance and the Dutch central bank (DNB) were insufficiently prepared for a crisis of such magnitude, and they were overwhelmed by the crisis. The State was forced to take large-scale bailout measures. In many cases, the House received late and incomplete information.

The Committee also took stock of other measures taken by the Dutch authorities between late 2008 and early 2009 during the financial crisis. For example, the Committee found the decision to increase the coverage of the deposit guarantee scheme for depositors from € 40 000 to € 100 000 sensible. The necessity for the Dutch State to guarantee the savings of the Dutch depositors in the case of the collapsed Icelandic bank Icesave has not been established. The Committee nevertheless understands this, given the possibility of social unrest, and it considers this measure to have been a responsible risk. The establishment of a facility for providing capital to banks and insurers, for which a sum of € 20 billion was made available, was a useful and necessary measure. This also applies to the guarantee scheme for bank loans with a ceiling of € 200 billion.

Other topics

The Committee also examined the way in which the Dutch authorities conducted crisis management, the activities of the European Commission in connection with the support operations and the involvement of the House of Representatives in the interventions. The report also contains the Committee’s recommendations with regard to the financial sector.

Role of the House of Representatives of the Netherlands

The Committee concludes that, in many cases, the Minister of Finance at that time did not provide timely and/or complete information to the House of Representatives, thus impeding the House in its role of holding the government to account.

In nearly all cases, the Minister did not inform the House of Representatives about crisis measures that had been taken until after the fact. In doing so, the Minister made it impossible for the House of Representatives to scrutinise the crisis measures in advance. The procedures concerning Fortis/ABN AMRO and Icesave constituted an infringement of the budgetary authority of the House of Representatives, as did the assumption by the State of 80% of the economic risk of ING’s high risk mortgage portfolio in the United States (IABF).

The Committee has issued a number of recommendations regarding the interplay between the Cabinet and the House of Representatives. For example, it should be avoided that the Cabinet provides large amounts of capital to individual institutions without prior consultation with the House of Representatives. The Government Accounts Act should be amended in this regard.

In addition, an information protocol is needed in order to inform the House of Representatives quickly and confidentially (if necessary) in advance of any crisis measures.

The Committee further recommends that, in cases involving an infringement of the budgetary authority of the House of Representatives, the Cabinet should be obliged to compose a retroactive memorandum of justification containing full information regarding the measures taken, as well as the argumentation upon which these measures were based.

Further details on Fortis/ABN AMRO

Fortis itself was responsible for the problems it ran into. At the same time supervision of both Fortis and ABN AMRO failed. It is partly for this reason that the intervention in Fortis did not take place until a very late stage. An important part of the problems at Fortis can be attributed to the acquisition of ABN AMRO in 2007 by the RFS consortium. According to the Committee, DNB and the Minister of Finance were wrong to issue a declaration of no objection in this matter.

Intervention in Fortis was necessary in the interest of financial stability both within and outside the Netherlands. The price that the Dutch State paid in the end – € 16.8 billion, later increasing to € 30 billion – was also a price for financial stability outside the Netherlands, and it was not in proportion to the economic value. The risks assumed by the State were great, and they were not transparent. The implementation of the bailout plan was flawed in many ways.

Major errors were made in the acquisition of the Dutch subsidiaries of Fortis. The valuations used were neither complete nor accurate. There were deficiencies in the exchange of information between the Ministry of Finance, its adviser Lazard and DNB. Partly for this reason, the Prime Minister and the Minister of Finance who were involved in and responsible for the final negotiations did not receive sufficient information. Neither was all of the available information used correctly in the decision to merge Fortis Bank Nederland and ABN AMRO. Because of this, a large proportion of the additional investments came as a surprise, which could have been avoided.

Further details on ING

ING was partly responsible for the problems that it experienced. The corporation had allowed itself to become more dependent than necessary on high-risk US mortgages, and its response to obvious problems on the US housing market was insufficient and late.

The supervisor DNB had an inadequate overview of ING’s problems, which prevented these problems from coming into view at the Ministry of Finance until a very late stage.

In October 2008, intervention in ING was necessary. On its own, however, the injection of capital left ING's key problem – the portfolio of high-risk "Alt-A" US mortgage-backed securities – intact. At that time, the Ministry of Finance did not want to provide a direct solution for these impaired assets. This led to delays, which ultimately necessitated a second intervention – the transfer of 80% of the economic risk involved with the portfolio of US mortgage-backed securities to the State. The reluctance of the Ministry of Finance with regard to a direct solution for this portfolio resulted in a less than optimal solution for both the State and ING, with profound implications for ING, as well as risks to the taxpayer that were greater than necessary.

Background information on the Committee of Parliamentary Inquiry into the Financial System

The House of Representatives initially set up a parliamentary investigation into the financial system in June 2009. The first part of the investigation was focused on the causes of the financial crisis. The Temporary Committee Inquiry Financial System was established for this purpose. This Committee was chaired by Jan de Wit, who presented the final report ‘Lost Credit’ on 10 May 2010.

For the second part of the investigation, the House of Representatives subsequently decided to conduct a parliamentary inquiry, the strongest instrument of investigation at its disposal, in which witnesses provide sworn testimonies. The Committee of Parliamentary Inquiry into the Financial System was established for this purpose on 16 November 2010. The parliamentary inquiry focused on the crisis measures taken by the Dutch government in the period between September 2008 and January 2009 in order to combat urgent problems in the Dutch financial system.

The Committee first conducted a closed investigation, including literature review and case studies. Most of the preliminary interviews, held behind closed doors, were held in May and June. Several supplementary preliminary interviews were held at a later time during the inquiry. In total, 76 preliminary interviews were held with 71 people, including some from other countries.

In November and December 2011, the Committee held a total of 54 public hearings involving 46 people. In late January 2012, additional public hearings were held on the specific events surrounding the acquisition of the Dutch subsidiaries of Fortis. In total, 61 public hearings were held involving 48 people. The total length of the public hearings was somewhat more than 100 hours. The archives of the Committee contain somewhat more than 700 binders.

The Committee of Parliamentary Inquiry into the Financial System, which presented its final report ‘Credit Lost II – Taking stock’, consists of the following members:

- Jan de Wit (SP), Chair

- Helma Neppérus (VVD), Vice-chair

- Roos Vermeij (PvdA)

- Maarten Haverkamp (CDA)

- Fatma Koşer Kaya (D66)

- Rik Grashoff (GroenLinks)

The Committee took stock of the measures and is counting upon immediate and swift consideration of the report by the House of Representatives.