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09 December 2013

Bank of Denmark/Rohde: Reflections on Denmark's sixth bank rescue package / Banking Union


Rohde said that Danmarks Nationalbank welcomed the agreement and was also following the negotiations on Banking Union closely. He felt it was important that euro area and non-euro area Member States were able to participate on equal terms.

A few months ago, the sixth Danish Bank Rescue Package was neatly wrapped up. I would like to take this opportunity to acknowledge the political responsibility shown in that connection.  Danmarks Nationalbank welcomes the agreement. It broadly observes the recommendations of the SIFI Committee to identify systemically important financial institutions and impose extra requirements, including stricter capital requirements, on these institutions. The agreement is an important milestone in the follow-up of the crisis but there are still important issues that the parties need to settle. These include crisis management and crisis management buffers. The final level of the Danish SIFI requirements will also be reviewed in 2017 at the latest. If it does not match the level of comparable European countries such as Sweden, Germany and the UK, it will be adjusted.

In the same way as Bank Rescue Package 6 underpins the largest credit institutions, the bill to address the mortgage banks' refinancing risk is an important contribution to financial stability. The bill leaves no doubt as to what will happen if interest rates suddenly rise very sharply or an auction fails. The refinancing risk is transferred to investors. For the mortgage banks, risk is, once again, limited to credit risk, which was the original idea behind the balance principle.

During the last 18 months, the Danish Productivity Commission has analysed the reasons for many years' low productivity growth in Denmark. Some sectors are more severely affected than others. The Commission has also presented a long list of proposals for improving productivity in various parts of the economy. The financial sector plays an important role in Danish society as a provider of capital to households and firms, and it also offers products such as pension saving schemes and hedging of various types of risk. In addition, the sector ensures that domestic and cross-border payments can be transacted efficiently.

Banking Union

Turning to the international agenda, negotiations on a Banking Union are currently underway. Danmarks Nationalbank is following these negotiations closely. No decision has yet been made about Danish participation, but the Banking Union will, in any case, have great importance for Denmark. Even if Denmark opts out, two of the largest banks in Denmark will be subject to supervision by the ECB in relation to considerable parts of their euro area activities. At present, these two banks account for more than 50 per cent of total lending by Danish banks.

A well-functioning Banking Union requires strong confidence in the single supervisory authority. An important step will be taken with the ECB's assessment of the assets and risks of credit institutions subject to direct supervision; this will take place in the coming year. It is positive that the Danish Financial Supervisory Authority plans to replicate this exercise for the large Danish banks, to the extent that it is possible.

Danmarks Nationalbank generally takes a positive view of the Banking Union outlined. It is an important step towards strengthening the single market for financial services and hence cross-border competition. Competition forces both banks and firms to be "on their toes" and improve their skills. That is healthy and good for everyone. It is important that euro area and non-euro area member states can participate in the Banking Union on equal terms. Otherwise, there is a risk that the single market for financial services becomes fragmented. In addition, Danmarks Nationalbank finds it essential that the Banking Union includes an insurance element in relation to the systemic institutions in Denmark. A single, strong bank resolution fund could ensure that.

The financial markets and the financial sector are now on a stable course, so Danmarks Nationalbank plans to phase out the additional borrowing options introduced in connection with the financial crisis. The six-month loans which Danmarks Nationalbank has offered to credit institutions since 2011 will be phased out from July 2014. Loans already raised will run until they mature. At the same time, the list of assets eligible as collateral for loans from Danmarks Nationalbank will be restored to normal. This means that banks' credit claims and sector company shares will be phased out of the collateral basis.

Full speech



© BIS - Bank for International Settlements


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