The Netherlands is a civil law country in Northern Europe. Its knowledge-economy is fueled by agriculture, a sophisticated services industry and foreign trade. The strategic location, reliable political climate and business friendly environment of the Netherlands have attracted several international corporations over the years. Corporate withholding tax on dividends may be reduced for foreign residents by the application of one of many double tax treaties. Additionally, tax charges on interest, dividend and capital gains from foreign subsidiaries can be severely reduced. As a result, the Netherlands also plays an important role in international financial planning and corporate structuring.
The Financial System in the Netherlands
The financial system of the Netherlands is large and globally interconnected. Financial sector assets are nearly eight times its gross domestic product. Four domestic banks account for almost half of the financial sector. Regulation and supervision is based on the twin peaks model. The Central Bank of the Netherlands (DNB) is the prudential supervisor of all financial institutions and the Authority for the Financial Markets (AFM) undertakes supervision over business conduct and security market activities. A Financial Stability Committee (FSC) has a macroprudential mandate and advisory powers.
Financial system reliance and stability is ensured by strict regulation and supervision, complemented by a robust legal framework. This is furthered by high ethical standards. Yet, some vulnerabilities in the Dutch financial system exist. These low sector wide profitability, high household and corporate indebtedness, strong reliance on wholesale funding and exposure to global economic developments. Extensive capitalization and periodic stress tests reveal that banks in the Netherlands can handle significant funding withdrawals. Still, the recent global financial crisis exposed sensitivity of the interconnectedness of the financial system leading to contagious systemic risk.
Procedures for Banks That Fail or Are Likely to Fail
Members of the European banking union adopt the Single Supervisory Mechanism (SSM) to ensure safety and soundness of the European banking system, increase financial integration and stability and to ensure consistent bank supervision. The Central Bank of the Netherlands participates in the SSM and hands over the supervision of significant and systemic financial institutions to the European Central Bank (ECB). Less significant financial institutions are subject to local supervision, resolution and solvency laws. These different approaches are justified by the impact their failure has on the local and European financial system.
The European Bank Recovery and Resolution Directive (BRRD) outlines the procedures to handle the failure of significant financial institutions. Its objectives are to ensure the continuity of the critical functions of financial institutions in distress; to avoid adverse effects to the financial system; to protect the public interest by minimizing taxpayer input; to protect retail deposits and other small creditors via a uniform deposit guarantee scheme; and to protect the (liquid) assets of the creditors of the bank. The European Single Resolution Board (SRB) is responsible for the resolution of significant banks in distress. Resolution does not necessarily result in the closure of the financial institution. Several tools and safeguards are available to minimize risk to society, creditors and staff members. Yet, dissolution always remains a possibility in matters of insolvency.
Since the year 2015, the Central Bank of the Netherlands has been the competent national resolution authority. Its key-task is to determine the resolution of individual banks in a decree that leads to either the dissolution or the resolution of the financial institution in distress. Dissolution of the bank then follows the regular insolvency and bankruptcy procedures. Resolution on the other allows for a restructuring of the bank, its business units, capital position, or activities. The public interest doctrine prevails to determine the appropriate solution for the bank and its creditors.
Legal Foundations and Claim Eligibility
Dutch banking law is extensive and combines local acts and regulation with international codes and European guidelines. National rules address the internal organization, financial architecture, and conduct of financial institutions with safeguards for consumer protection. The Financial Supervision Act, the Wet Financieel Toezicht (WFT), defines, among other things, the scope and execution of financial supervision, investor compensation and bank deposit protection. From an international perspective, uniform policies allow for harmonization and an equal level playing field. The Netherlands therefore adopts global standards to safeguard the functioning of the international financial system and protect the public interest.
The European Directive on Deposit Guarantee Schemes (2014/49/EU) requires member states to provide the same minimum level of coverage to the same type of creditors. There is however some flexibility in the directive in terms of implementing the framework into national law. Account holders should therefore examine the general guidelines in the EU directive but focus on the application of the scheme in the Netherlands to comprehend the exact procedures.
European regulation limits eligible and covered deposits under deposit guarantee schemes in the member states. Article 5 of the Directive describes the deposits that are excluded from repayment under a local deposit guarantee scheme in one of the member states. For example, deposits whose owner has never been identified and deposits arising from transactions in connection with which a money laundering conviction has been obtained are excluded. Accounts held by public authorities, financial institutions, investment firms and pension funds are also not covered by European deposit insurance. All other bank account deposits that become available can be covered under the deposit protection framework.
Bank Deposit Protection in the Netherlands
The Dutch deposit guarantee scheme protects the assets of account holders of licensed and supervised banks that are no longer able to meet their obligations. If certain conditions are met, account holders may be reimbursed for their insured deposits. The maximum level of compensation in the Netherlands is set at 100.000 euro and includes payment, savings and joint accounts for individuals, sole traders, organizations and businesses.
All banks that operate in the Netherlands with a license granted by the Dutch Central Bank must participate in the Dutch deposit guarantee scheme. The members of the scheme make premium contributions to the ‘depositogarantie stelsel’, that is managed and operated by the central bank. The compensation procedure for eligible creditors is initiated when one of the local banks fails and bankruptcy proceedings are announced.
Following the failure of a Dutch supervised financial institution, the Dutch Central Bank, the Deposit Guarantee Scheme or the failed bank will contact the account holders. In an official letter, the DGS administration outlines the claim filing, verification and repayment procedures while creditor expectations are managed. Repayment is exclusively made by bank transfer and creditors must hold or open a bank account at another licensed bank in the Netherlands to qualify for reimbursement. Within seven working days after the failure, an official website will be launched by the DGS administration where Dutch citizens can login with their DigiD. Reimbursement of the insured balance is made within several days and the scheme is open for a period of three months after the official letter is sent by the DGS administration to the account holder.
This standard compensation procedure is tailored towards retail customers and the local market. The Dutch digital identity (DigiD) is used for secure and verified communication and transacting with the Dutch government. It is available for natural persons registered in the Personal Records Database which requires residence in the Netherlands. International bank account holders and corporations therefore have no access to the DigiD platforms and must verify their identity and proof of claim in an alternative way during the DGS claim filing process. Due to the limited timeframe to submit a DGS claim in the Netherlands, international creditors are urged to act accordingly.
Recovery of Ineligible Deposits and High Account Balances
The objective of bank resolution in the Netherlands is to protect the public interest and limit risk to all stakeholders. However, the premise of the central bank is that financial institutions, like any other firm, can fail. Intervention via resolution is justified when the consequences of the actions pose a threat to the local economy, financial stability or public finance. The central bank may then decide to bail-in or sell (parts of) the institution, or dissolve the bank via regular bankruptcy proceedings. In the latter, the DGS is activated and eligible creditors are reimbursed up to 100.000 euro.
There are three options Dutch regulators can choose from when a supervised financial institution fails or is about to fail. A bail-in of the institution can be imposed, where shareholders and other creditors participate in the losses of the bank. Government and taxpayer support is not needed as the failure of the bank is viewed as an internal matter. The second option available to the central bank is the sale of the business tool. It may be sold in its entirety or just by selling the profitable parts and dissolving the loss-making business units of the bank. The sale of the business allows for a conservation of the assets of the creditors while they retain access to their bank accounts and payment facilities. The final option for regulators is to ask the court to declare the bank bankrupt and activate the deposit guarantee scheme. Bankruptcy is an important part of the recovery of ineligible deposits and account balances that exceed the limits of deposit insurance.
Bank resolution prevails over bankruptcy when the consequences of the latter disrupt society. Several aspects determine the preferred approach such as the size and number of checking and savings accounts with the bank and other critical functions of the bank. This is further established by the size and scope of the bank and its customer- and savings portfolio, the number of payment and checking accounts, the connectedness of the bank in the financial system, and the risk of contagion and spillover to other financial institutions. As a result, most banks that operate in the Netherlands do not qualify for resolution and bankruptcy proceedings must be initiated. The deposit guarantee scheme is then activated to protect savings up to 100.000 euro. The level of standard protection can be raised with another 500.000 euro per person per bank when the account balance is temporarily high for the purchase or as a result of the sale of personal property.
Creditors whose debt is bailed in, and those with claims subject to bankruptcy proceedings, need to exercise caution. Dutch codified law is strict and leaves little room for post factum prioritization of claims. Account holders and other creditors should therefore seek additional protection via fixed or floating charges and other securities, before their bank gets into trouble. An unlikely failure of a credit institution amplifies this counterintuitive and uncommon action for regular account holders.
Torts and other unlawful acts between contract parties are settled by the civil courts in the Netherlands. Creditors who feel wronged by the bank or any other culprits can seek compensation for actual damages through legal proceedings. When banks are closed due to criminal acts of the institution, the Dutch legal system allows civil parties to join in the criminal proceedings as an affected party. As a result, there are several ways to achieve a high recovery rate alongside the standard insolvency procedures that consider a hierarchy of creditors and often lead to a write down or haircut of the outstanding balances.
Contact us For More Information
Deposit Guarantee Claim is a service provided by Legal Floris LLC to international bank account holders whose bank fails or investment disappears. Our vast experience in dozens of bank failures in several different countries enable us to maximize repayments and minimize risks for our clients. When it comes to the Netherlands, we speak the language and understand the legal system. Foreign creditors and international account holders with assets in the Netherlands therefore benefit most from our (no cure no pay) fund recovery services. Contact us right now to find out how we can help to reclaim your account balance if your bank in the Netherlands stops operating:
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