Credit lost: a Dutch Parliamentary committee’s report on the financial crisis

On 10 May 2010, the Dutch Temporary (Parliamentary) Committee on the Inquiry Financial System (the committee), also known as the ‘De Wit Committee’ after its chairman, set up by the Dutch Parliament’s House of Representatives, presented its report on the first part of its investigation into the crisis in the Dutch financial system. This report, which the committee titled ‘Credit Lost’, examined the causes underlying the financial crisis and specifically looked at what occurred in the period up to late September 2008, the month in which Lehman Brothers went bankrupt. In connection with its investigation, the committee formulated several conclusions and recommendations to avoid a repeat of such a dramatic crisis in the future.1

Recognising macroeconomic risks

The immediate cause of the financial crisis, according to the committee, was the bursting of the housing market bubble in the US, when it became clear that a lot of bad mortgages had been issued. The committee also states, however, that the deeper underlying causes of the crisis had to do with macroeconomic considerations (trade and monetary policy, globalisation and deregulation of the financial markets). These considerations provided the breeding ground for financial institutions, utilising technological and scientific innovations, to increasingly furnish huge sums of credit, and deal in loans and credit risks in the capital market. Consumers and businesses borrowed more and more money. In the committee’s view, the precise connection and relationship between risky, international macroeconomic factors and the financial system had not been adequately recognised and assessed, neither by important advisers to the Dutch government – the Netherlands Bureau for Economic Policy Analysis – or the Dutch Central Bank. The committee recommends that these advisers jointly inform the government and Parliament, at least once a year, about international macroeconomic developments, as these relate to developments in the financial sector.

Changes in the financial sector’s structure, culture and conduct are essential

According to the committee, the conduct of financial institutions, the dominant actors within the sector, played a big part in creating the crisis. Obvious shortcomings in the risk management within financial institutions came to light as a result of the economic downturn. In balancing commercial interests (returns) against the associated risks, Dutch institutions also concentrated too heavily on the former. The committee advocates supplementing and tightening the Dutch Banking Code (the Dutch code of conduct for and by the banking sector) regarding risk management and remuneration policies.2 The committee is also of the view that the financial sector should develop a vision for its future and the social responsibility that this entails. Moreover, it recommends that other financial institutions similar to banks – such as insurers, pension funds and investment companies – adopt their own code of conduct as well.

Need for tightened regulations and a stronger role for the national parliament

The committee finds that major elements of the financial system had not, or had hardly, been regulated. It concludes that reform and amendment of the laws and regulations for the financial system is necessary and urgent, and expresses a preference for global and European action in this area. The committee argues for a gradual increase in the minimum capital requirements for financial institutions, a separation of ‘utility bank’ activities from merchant bank activities within financial institutions and an expansion of the intervention mechanisms available to the government. In reforming the financial system, the House of Representatives should, the committee says, take on greater monitoring and legislative responsibilities.

Enhanced regulatory supervision and enforcement desirable

In the committee’s view, the crisis also made clear that supervision of the financial system’s stability and of the financial institutions themselves fell short throughout the world. The committee argues for a single, powerful European regulatory body with sufficient and improved resources at its disposal to effectively oversee cross-border financial institutions and activities. It is also of the view that the financial supervision process in the Netherlands should be more transparent. Expansion of, and improved, provisions concerning the monitoring instruments available to regulators is necessary. The scope of supervision must be broadened as well. Currently, a licence or prospectus is not required for financial offerors that ask for an initial investment of more than €50,000 or securities issues of less than €2.5m. The committee concluded that these limits are too low and must be significantly adjusted.

Later this year, the committee will begin the second part of its investigation into the financial crisis in the Netherlands. The effectiveness, legality and efficiency of the billions in support that the Dutch government gave to several banks and insurers during the financial crisis will be the main focus. In the political arena, voices are being raised to continue the investigation in the form of a parliamentary inquiry. The first part of the investigation had the character of a parliamentary investigation in which, unlike an inquiry, witnesses cannot be made to testify under oath.

Boekel De Nerée is a leading independent Dutch law firm of advocaten and civil law notaries.

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  1. The text of this article is based on the main conclusions and recommendations in the first chapter of the committee’s report, Parliamentary Papers II 2009/10, 31 980, Nos 3-4.
  2. For further details on the Dutch Banking Code, see: