
Denmark doubles capital buffer to contain wider Danske Bank risks - petethomas
https://www.reuters.com/article/us-danske-bank-moneylaundering/denmark-doubles-capital-buffer-to-contain-wider-danske-bank-risks-idUSKCN1M5162
======
arghwhat
An interesting thing to note for those that care:

Danske Bank has acquired several banks over time, and integrated them into the
brand. The Estonian branch is such an acquired bank.

After being acquired, the normal procedure for Danske Bank would be to move
the newly acquired bank completely over to Danske Bank's banking platform.
This platform includes all the Danske Bank business logic and procedures, such
as money laundry checks as per EU regulations.

However, in this specific case, it was deemed too expensive, and the new
branch was left as is, running its own banking system separate from the rest
of Danske Bank.

Someone responsible for that decision, which effectively left that new branch
to its own devices, is probably having a bit of a bad taste in their mouth
right about now.

~~~
talltimtom
> Someone responsible for that decision, which effectively left that new
> branch to its own devices, is probably having a bit of a bad taste in their
> mouth right about now.

Why? Their reasoning then was that it would cost them to much to transfer the
bank, “discover” the laundering and paying fines, instead they left it so they
could earn more money by the time it was eventually “discovered”.

These aren’t kindergartners running these banks and systems, they knew what
was going on. They likely did make the right choice, the fines will be the
same since now as they would have been then, and now they have a large profit
to pay them from.

~~~
arghwhat
This explanation is a bit too far fetched.

The effort to move the bank to their own banking system is on itself a
tremendous effort. We're talking calendar years of implementation time, huge
risks and a stall of most other development. The leadership knows that their
banking systems are a pile of bleeding horse dung that they wish to avoid
touching at any cost.

They are not kindergartners, but they are not omnipotent either. Knowing that
the Estonian bank had improper processes would by itself require a lot of work
to discover, and figuring out if this has been abused would likely be quite a
massive task. Doing the move to the new business logic would reveal the issue,
but not before it was done.

Never attribute to malice what can be sufficiently explained by incompetence.
What we see here can be explained with just a little bit of incompetence, or
an extreme amount of malice. The former is far more likely.

------
chvid
There has been a money laundry scandal in its Estonian branch of epic
proportions.

The risk is now a massive fine to Danske Bank. Not by the Danish state. But by
either the EU or more likely the Americans.

Danske Bank is the biggest bank in Denmark with +50% of all banking business.
It is a liability of the Danish state meaning that if it gets in true trouble
the state will bail it out.

~~~
charlesdm
Actually, the share and bondholders will be required to bail it in, under EU
laws introduced a few years ago.

~~~
drb91
Yikes. Sounds shitty for EU residents in the long term. Wouldn’t it be better
to let the bank fail, ie learn from 2008 that bailing out encourages the bad
behavior?

~~~
charlesdm
This is actually great for EU residents, as shareholders and bondholders will
(initially) be on the hook for excess risks being taken, not residents.

Not all bank shareholders were wiped out in 2008, while they clearly should
have based on the amount of public money some banks got.

~~~
ismail
Does the ECB hold bonds for Danske bank? The ECB and other central banks have
been on a bond buying [0] 'spree' [1]

If the ECB holds these bonds then technically eu monetary union citizens do
have exposure.

To me this seems to have been a dangerous decision by the ECB and other
central banks. With their policy, could this have created a situation whereby
companies that would not otherwise survive are now over-leveraged. The result
being a small disruption bringing everything down with it?

To put the question another way, do we have a massive bubble in corporate debt
due to central bank polcies, resulting in companies that should have gone
under being over-leveraged.

With the ECB planning to stop the buying by end 2018, will we see a
correction?

[0]
[https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h...](https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html)

[1] [https://www.wsj.com/articles/central-banks-put-squeeze-on-
so...](https://www.wsj.com/articles/central-banks-put-squeeze-on-sovereign-
debt-market-1467847016)

Edit:

According to JP morgan [3] the policy has created 'zombie' companies.

[3]
[https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-...](https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-
s-erdoes-says-ecb-bond-buying-creates-zombie-companies)

------
krn
What this article doesn't mention, is that Denmark is facing all these issues
now, because Danske Bank's Estonian branch was used to move vast sums of money
out of Russia by the people close to Russian government and Vladimir Putin
himself, using the scheme called "The Russian Laundromat"[1]:

> FSB representatives served on the board of at least one of banks that wired
> billions out of Russia as did Igor Putin, Putin’s cousin. He was a manager
> and executive board member in the Russian Land Bank.

[1] [https://www.occrp.org/en/laundromat/the-russian-
laundromat-e...](https://www.occrp.org/en/laundromat/the-russian-laundromat-
exposed/)

~~~
gadders
There is a theory that Vladimir Putin is the _actual_ richest man in the
world.

~~~
cryoshon
i've heard his wealth estimated at $200 billion USD. but at this point i don't
think it matters. he has an entire country.

~~~
adventured
I've been reading about those claims for well over a decade now.

Not one of them has ever explained where he could have come up with ~$200
billion (or the old numbers, which were more like $40b to $50b) from. There is
no entity inside of Russia capable of spitting off that kind of hidden side
profit - just for him - in the time frame in question. Their entire economy is
a mere $1.5 trillion. If you figure most of the graft occured in the last 13
to 15 years, where was he siphoning $12+ billion per year from? Again, there
are no entities in Russia capable of subtly delivering that sort of cash.

If he owned 100% of Rosneft (or Lukoil) and Gazprom, he'd still be worth
closer to ~$100b-$120b than $200b. Needless to say, he doesn't own those two.
He'd have had to be taking a very large share of the annual total industrial
profit of Russia, to squirrel away these sorts of numbers over time.

The notion that Putin is secretly the richest person (they keep increasing the
mythical sum over time to stay ahead of Gates etc), is nothing more than empty
bravado that Russia likes to encourage to artificially prop up the projection
of power that Putin relies upon to govern.

~~~
JetSpiegel
Putin de facto owns those companies and more, the oligarchs are in his pocket.

He might not be on the corporate hierarchy, but his decisions override the
board.

~~~
gadders
When he can have the CEO killed like Berezovsky, he pretty much has a veto
over policy.

------
Bucephalus355
Doubling capital buffers providers surprisingly little protection. I can’t
criticize the move but still, in an era of fractional banking where investment
banks (really hedge funds that have a banking license) are leveraged 30 to 1
on a good day...things can get bad quickly.

------
interfixus
Not to worry. I have been staunchly admonished in a Danske Bank branch for
attempting to pay a bill of roughly $50 (a laundry bill for an old lady of my
acquaintance) without being able to produce the required official ID. I was
clearly a terrorist pedophile laundering drug-money for the Russian mafia.

------
btilly
Question. Is it remotely possible that as Danish financial institutions
attempt to simultaneously increase their capital reserves, that will suck
enough money out of circulation to start a deflationary spiral? In other words
that the attempt to contain the risk can cause a crisis?

~~~
venantius
It's possible but pretty unlikely. The capital buffers being introduced are
about 1% of Danish banks' balance sheets, and it's likely that the capital
buffer for this was previously non-zero (e.g. likely 0.25% or 0.5%). So an
increase of 0.5% or 0.75%.

And it's worth keeping in mind that a lot of banks, for governance reasons,
will already have been holding in excess of the regulatory requirement. So
it's not as if most of the banks will have to come up with this money suddenly
- it'll already be there and available.

That's not to say that it's not a large amount of money in absolute terms, but
relatively speaking if they were to reduce their loan origination for the year
they have to come up with the money be something like 2-3% they'd be totally
fine. That's not exactly going to kill the economy.

------
gpvos
The problem is that many banks are too big to fail. So we increase the
reserves that banks must keep to protect against economic shocks. Result:
small banks cannot manage anymore, no-one can enter the financial arena, more
banks are too big to fail.

~~~
occamrazor
Actually the regulations already prescribe additional capital requirements for
larger institutions, the so called SIFI.

------
cirgue
This is a somewhat minor point, but it surprised me that the edit: Danish
reserve requirement has been _raised_ to 1%. In the US, it's at roughly 10%
and has historically been between 8 and 12% for large banks. Does anyone more
familiar with Danish banking know why their reserve requirement is so low
compared to ours?

~~~
wjnc
It's Denmark, not the Netherlands we are talking about. Your intuition seems
correct [1]. The 1% capital requirement in the Reuters article must be an add-
on requirement and is to low to be the stand-alone requirement. Fitch put
Danske at 4.2% Basel III 'fully loaded' last summer. The wiki points out how
diverse the calculations can turn out so that it's pretty much pears and
apples comparing these internationally.

[1]
[https://en.m.wikipedia.org/wiki/Capital_requirement](https://en.m.wikipedia.org/wiki/Capital_requirement)

~~~
venantius
The 1% refers to a specific sub-segment of the overall capital requirements.
This would be on top of any normal Basel III requirements and is typically
marked as a "discretionary" capital buffer to be set by the state in question.

EDIT: Ah, nuts, meant to reply to grandparent rather than parent. Oh well.

------
samstave
If you have not already watched it, Watch "Active Measures" about the
Manafort/Putin/Trump money laundering ties...

The reason I mention this here is that the former President of Estonia is
interviewed in the documentary a bit.

I was wondering ___why_ __would they be interviewing the President of Estonia
regarding the Russian Mafia /Manafort/Trump laundering -- Welp - this is why.

------
safgasCVS
The financial sector never fails to demonstrate how utterly worthless it is.

~~~
linkmotif
Finance makes the world go round

~~~
arghwhat
Finance provides slight convenience and a few useful products (like
mortgages). The vast majority of the financial sector does nothing significant
to the outside world, and often just cause negative side-effects.

A good story to tell here is the total bank strike in Ireland that lasted a
year, where everything operated just fine without the banks.

~~~
gaius
_The vast majority of the financial sector does nothing significant to the
outside world, and often just cause negative side-effects._

So... like Silicon Valley then?

~~~
safgasCVS
Shun the non-believer!

(I guess we're both getting downvoted today huh)

