Danske Bank A/S (ADR) (OTCMKTS:DNSKY) (CPH:DANSKE)’s liquidity has been of some concern to the public. It has been in the form of repeated “computer failures” to the net-banking. Generally happens on the last day of the month. This is probably in part due to the central bank (CB) rules that on that day the total amount that is to be transferred to other banks has to be deposited in full in the CB – before being cleared with payments received from the other banks.

Danske Bank

The purpose of this rule is actually for the CB to check that the bank is actually liquid – i.e. does not pay with money it hasn’t got. As no bank will admit to fiddling with its liquidity the computer department regularly has to produce some sort of lame excuse – which however is not very helpful to people having to pay their rent and not receiving their pension on time. Very annoying.

The Bank Inspections reports are specifically designed to be as bland as possible, but when one is concerned specifically with the management and control of the liquidity of the country’s largest bank it might merit some attention – especially as it is tucked in between a stack of reports indifferent and small provincial banks.

Observation From Danske Bank’s Report

There are indeed some observations some might find interesting:

Quote: Finanstilsynet inspected Danske Bank A/S (ADR) (OTCMKTS:DNSKY) (CPH:DANSKE) in March 2013. This was in cooperation with the bank inspections of several other countries where the bank has subsidiaries or branches.

Comment: This does lends some weight to the theory that banks are getting disentangled from other countries. The cooperation has been seen before –  f.i. in connection with Danske Bank’s unfortunate adventures in Ireland.

Quote: The inspection was only concerned with the banks actual liquidity and financing structure to a limited extend, as Finanstilsynet has that under close and regular surveillance…

Comment: Nice knowing they are breathing down their necks….

Quote: Finanstilsynet found that the board of the bank had not clearly defined the risk profile and – appetite in the area of liquidity, and Finanstilsynet ordered the bank to change that.

Comment: Ouch.

Quote: [cont.] The bank is in this connection to perform a stress test illustrating the banks reduced liquidity position under the assumption that the boards liquidity target is just precisely being met.

Comment: They can’t (or won’t?) produce that on demand?

Quote: Aside from that, Finanstilsynet judged that the board’s involvement and the management information in relation to liquidity risk in general have improved appreciatively in 2011-2012. It was further evident, that the improvement is still in progress.

Comment: The former management was replaced for a reason?

Quote: Finanstilsynet found that in the light of the banks size and complexity  there was not sufficient clarity with respect to all the banks essential activities, authorisations and accountability in relation to controlling the banks liquidity risk.

Furthermore there were a number of explicit demands in the official guidance, which were not being enforced. The bank was ordered to ensure that the bank’s policy, internal rules and procedures regarding liquidity meets the specified standards of the official guidance.

Comment: Considering the rather basic nature of the “flaws”: Either the management is completely incompetent or they prefer to look stupid instead of criminal.

Quote: The bank regularly tests the bank’s liquidity risk and has made a number of analyses, to make assumptions of the money flow in different scenarios. The banks assumptions are based on an extensive analysis made in 2008/2009 and few subsequent ad-hoc analyses.

Finanstilsynet ordered, that the bank analyse all relevant elements in relation to stress tests more often. In this connection the bank must ensure that the banks assumptions in the severe scenario are sufficiently cautious.

Comment: To me it reads as a warm up to criminal neglect proceedings. Like officials covering their back and washing their hands of an imminent disaster. That is what I would do, as an official.

Truly dismal reading.