SNAP ANALYSIS-ECB’s Wellink vulnerable after report on DSB bank failure

By Reuters Staff
June 29, 2010

By Ben Berkowitz

AMSTERDAM, June 29 (Reuters) – A scathing report on the failure of Dutch bank DSB is likely to revive calls for European Central Bank governing council member Nout Wellink to step down early from some or all of his roles.

Wellink, who is also the president of the Dutch central bank (DNB) and chairman of the Basel Committee of global central bankers, is not criticised directly in the report.

But the report concludes that the central bank, which he leads, should not have licensed DSB, failed to supervise it properly and needs reform.

* The report makes it all but certain that the new Dutch government, which is still being formed after June elections, will not reappoint Wellink to a new term as DNB head when his current one expires on July 1, 2011. He has led the DNB since 1997 and been a member of the ECB’s board since 1999.

* It will also increase the pressure on Wellink to resign early from various roles. Members of parliament, opinion columnists in the leading newspapers and investors’ groups have said he should have resigned over his handling of the Oct. 2008 collapse of the Icelandic online bank Icesave, with some saying he never should have licensed that bank either.

* Finance Minister Jan Kees de Jager was quick to endorse the conclusions of the latest report, which contained stinging criticism of the central bank’s fundamental culture. De Jager said he would propose new laws to reform the way the central bank supervised and was supervised.

* Suggestions that the Dutch central bank was not an adequate supervisor could cast a shadow over the Basel Committee’s work to implement the new so-called “Basel III” capital rules. Wellink has been a forceful advocate for the committee’s work, but may have lost some moral authority.

* The report could also complicate Wellink’s position on the ECB governing board. Europe’s central bank is fully occupied dealing with the recovery from the credit crisis and the effects of the sovereign debt crisis, and any cloud hanging over a board member could be a distraction.

* Other banking chiefs have been criticised for the credit crisis — and Wellink may still cling to power — but like his U.S. peer Alan Greenspan, Wellink risks being remembered more for the crises at the end of his long tenure — Icesave, the sale of ABN AMRO to Fortis and its later nationalisation, DSB’s failure — than for achievements in the preceding years.

(Additional reporting by Harro Ten Wolde; Editing by Ruth Pitchford) ((ben.berkowitz@thomsonreuters.com; +31 20 504 5011; Reuters Messaging: ben.berkowitz.reuters.com@reuters.net))

Tuesday, 29 June 2010 06:15:41RTRS [nLDE65S0NV] {C}ENDS

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