The day the police raided a bank
by Zdenek Horeni It was a curious case. One day, at five minutes to noon, a squad of Prague policemen, masked and armed to the teeth, forced their way into the head office of a Czech bank. Pistols and submachine guns. Unannounced and without even knocking on the door, 12 policemen from a special hit squad burst into the office of the managing director, who could only look on powerlessly at what was happening. And happen it did. The police commando had come to tell him that the bank was being put under enforced administration, and the administrator, who they'd brought with them, was introduced to him. The institution which had aroused the police's ire was the Investment and Postal Bank (IPB). Earlier it had been sold to the Japanese Nomura Bank for three billion crowns (about US$70 million dollars at today's exchange rate of 40 crowns to the US dollar). But Nomura, which made a quick profit of 20 billion crowns by selling some of IPB's real estate, was clearly a bad manager, the bank had become insolvent. IPB was the third largest banking house in the Czech Republic. In a country of ten million people it had 3.3 million clients who had deposited more than 300 billion crowns with it. For several days its offices had been besieged by a crowd of clients whose confidence in the bank had evaporated. IPB was threatened by a run: in three days its clients withdrew 23 billion crowns. A hard nut Why a heavily armed police commando had to storm the bank is a question which so far has not been satisfactorily answered. But the Czech Government, which had agreed to this, knew which way the wind was blowing: a major private bank had to all intents and purposes collapsed and only a miracle could save it. The miracle took a prosaic form: IPB was taken over by its prestigious competitor, the Czechoslovak Commercial bank (CSOB), 66 per cent of which was owned by the Belgian bank KBC. The incident, which took place in June of this year, created such a storm in Czech political waters that the Chamber of Deputies set up a special commission of inquiry to establish who specifically was to blame for IPB's collapse. Of course our story doesn't end there. The police and parliament are continuing their investigations, the political parties and the public want to know who bears most of the blame, and clearly it will be some time yet before the Czech citizen learns whose fault it really was. Every day banks handle millions and billions, astronomical amounts far removed from the world in which most of the population live. Nevertheless, the IPB affair shocked public opinion in the country and continues to do so, even today. Ordinary Czechs know from the newspapers that they'll have to foot the bill for IPB's collapse to the tune, some say, of tens of thousands of crowns per head. Because the cost of rescuing the bank will be met out of the state budget. In a fit of holy zeal Prime Minister Milos Zeman originally said that his social democratic government would not spend so much as a single crown on bailing the bank out, but reality forced him to change his mind. Now the talk is of tens of billions of crowns being needed to finance IPB's recovery. Havel: 400 billion stolen After IPB's collapse, the Czech newspapers published a list of 18 Czech banks, large and small, founded in the '90s which soon either collapsed or had to be "rescued" by being taken over by other banks. IPB was the 18th on the list. Tens of billions of crowns were "poured" into them, either openly or in secret. In a moment of frankness, on October 1, 1999, President Havel admitted that under his regime the state had been robbed of 400 billion crowns. A large part of this was attributable to machinations in the banking sector. In the meantime, as the daily Pravo noted on May 22, the state has spent 160 billion crowns in making good losses by banks, but at the Consolidation Bank, which is the government's dumping ground for "problem loans", they expect the latest rescue operation to cost around 300 billion crowns. Tip of the iceberg During so-called "large-scale privatisation" in the mid-'90s, Czech privatisers regularly bought up state property with loans granted by banks. The government encouraged banks to make such loans: it was said that a private owner would always be a better manager than the state. Loans were churned out on a conveyor belt, but not all of the the privatisers repaid their debts. This decline in repayment discipline, which the government and parliament failed to enforce by not preparing effective legislation, led to a chain of collapses at Czech banking institutions. So there was a paradoxical situation in the Czech banking sector: whatever the state had raised during large-scale privatisation by selling off state assets, accumulated when Czechoslovakia was socialist, ended up being poured into a bottomless pit the financial institutions which had been stolen by the smartest and most successful of the large-scale privatisers. So IPB was only the tip of the iceberg of major fraud, and as all the circumstances show it is all the governments of the "Havel era" which are jointly responsible for this.
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