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If a bank or insurance firm fails, it must do so in a controlled manner. This ensures that customers remain access to their payment and savings accounts or keep their insurance coverage. Also, the institution's problems must not spill over to other financial institutions or the economy as a whole. Monitoring this process is one of the tasks of De Nederlandsche Bank (DNB). This is called resolution.
Banks and insurance firms play an important role in the economy
Banks and insurance firms play a crucial role in the economy and in your daily life. Receiving your salary, putting aside your savings, paying for your purchases – all of it involves your bank. And insurance firms take over financial risks that you are unwilling to take yourself. So you want to be able to rely on banks and insurance firms.
Our supervision aims to prevent problems
DNB supervises these institutions, checking that they are financially sound and comply with all the rules. This minimises their chances of getting into difficulties. And it ensures that they continue to perform their tasks well. Nevertheless, a bank or insurance firm could still run into financial difficulty . If an institution incurs large losses, it may even fail.
What if a bank or insurance firm fails?
If a bank or insurance firm fails, normally speaking, it goes bankrupt just like any other business. But the consequences of failure of some banks or insurance firms are simply too severe – for their customers, other financial institutions or our economy. This is why it is important that such an institution fails in a controlled way. DNB has the task of making the necessary arrangements to ensure this happens. We do so not as a supervisory authority, but as the national resolution authority.
Response to the financial crisis
We were given this task in response to the financial crisis of 2008. At the time, several banks and insurance firms faced major financial difficulties. The government had to step in and rescue them with taxpayers’ money. And the difficulties faced by financial institutions dealt our economy a severe blow. We wanted to prevent this from happening again, which has led to a centralised European approach for failing banks. This is why since 2015 we have had the legal instruments to intervene if a bank runs into problems. And since 2019 we have also had these tools for insurers.
How we intervene
There are various ways in which DNB can intervene:
- Bail-in: we ensure that shareholders pay for the losses. Also, certain investors that funded an institution or to which the institution owes money can become shareholders. This way, their money remains invested in the bank or insurance firm, which is then relaunched. This means there is no need for the government to step in.
- Sale of business: we sell the bank or insurance firm to another institution, either in part or in whole. If a financially sound party takes over the activities of the failing institution, customers retain access to their accounts or remain insured.
- Bankruptcy: we let the bank or insurance firm go bankrupt, but in a careful and controlled manner. This minimises any negative impact. If a bank goes bankrupt, customers receive the money they held at payment and savings accounts up to EUR 100,000 under the Dutch deposit guarantee scheme within fifteen working days. There is no such guarantee scheme for customers of insurance firms.
Thorough preparation is of vital importance for us to intervene in a failing bank or insurance firm. That is why we determine in advance the best possible approach for each institution, should it run into difficulty. We set out that approach in a plan that ensures we can act promptly and effectively if needed.
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