With the presentation of new consolidation initiatives, Denmark have acquired new tools that reduce the risk of more banks having to go through The Danish resolution scheme for winding-up banks.
The Danish Bankers Association wishes to acknowledge that the government and the settlement group behind the Financial Stability Schemes have acted in a responsible, efficient, and timely manner by crafting an agreement that addresses the challenges that the sector has encountered as a result of the Danish unilateralism with The Danish resolution scheme for winding-up banks.
"With the consolidation initiatives, we are improving the possibilities that the Danish banking sector will be able to avoid The Danish resolution scheme for winding-up banks, and we are increasing the possibilities of finding consolidation solutions," says director of The Danish Bankers Association, Jørgen A. Horwitz. He points out that the banking sector constitutes the cornerstone of the Danish welfare society, and that healthy and solid banks are prerequisite for national economic growth since the banks provide financing for the corporate sector and private customers.
The sector has paid out of its own pocket
"It is important to point out that we generally do have a healthy banking sector in Denmark. This was also evident from the EU's stress test of Europe's banks in July where the Danish banks were in a very strong position. Over the past year, however, in Denmark we have been acting unilaterally when it comes to winding up banks, and this has been costly for banks as well as for customers. With the consolidation initiatives, we have acquired the tools for reducing the risk of having to wind up ailing banks through The Danish resolution scheme for winding-up banks - and this is highly essential to maintaining a healthy banking sector in Denmark," Horwitz says.
Horwitz points out that at no time has the sector ever asked for - or received - any government funds paid for by the taxpayers.
Danish unilateralism has been costly
"Rather, the Danish unilateralism with The Danish resolution scheme for winding-up banks has been a costly affair for the Danish banks; we have not been competing on equal footing with foreign banks and have had to pay more for financing compared to foreign banks. Add to that the sector's expenses associated with the first two Financial Stability Schemes (The Agreement on Financial Stability and The Credit Package) and the sector's joint and several liability associated with failing banks, which all together has cost the Danish banks close to DKK 40 billion," Horwitz says.
In addition to incentives for healthy banks to take over ailing banks - through an adjusted dowry scheme - The Danish Bankers Association points to two essential elements in the consolidation initiatives: The fact that a work group is now being formed that will look into a new premium-based method for making payments to the Deposit Guarantee Fund in such a way that the banks' payments are distributed evenly over time without having such a deep financial impact. This is in addition to a clear recognition that we have systemically important banks in Denmark.
The Danish Bankers Association finds it positive that the government is recognising that there are systemically important banks in Denmark. This ought to eliminate concern about the funding situation, which is highly essential and useful for the entire sector since it spreads through relending to the rest of the Danish banks. However, we need to be aware that there are requirements, and thus costs, associated with labelling the banks in question as being systematically important.
"It is also with great satisfaction that we have noted that the National Bank is now going to expand its lending facility to make it possible to mortgage good loans, which in turn increases financing options," states Horwitz.
Together with the government, The Danish Bankers Association will be working actively to find solutions where healthy banks will take over parts of or entire banks that are ailing.
Director of The Danish Bankers Association, Jørgen A. Horwitz through PR manager Mikael Winkler (phone: +45 3370 1015).