Republic brought to the brink

BANK SCANDALS ARE nothing new. From BCCI to Barings, financial institutions have been brought down in the wake of the discovery of holes in their accounts. Now you can add Baninter to the list.

In the case of the third-largest bank in the Dominican Republic, though, the effects were much worse than those of bank frauds elsewhere. The scale of deception was so big that it has devastated the entire economy, which has suffered a currency collapse, a dramatic widening of bond spreads, and a downgrade of its credit ratings.

The bank within a bank at Banco Intercontinental (Baninter) was uncovered in April, after its purchase by Banco del Progreso was agreed. Baninter had 14.6% of the banking system's assets, while Progreso was the sixth-largest bank, with 7%. The deal never closed. Progreso's due diligence uncovered what regulators and the bank's auditor had missed for more than a decade: embezzlement and fraud that had siphoned off...