Denmark Seeks Too-Big-to-Fail Bill Today as Terms Agreed

Danish lawmakers are ready to agree on a bill today that will set tougher capital standards for the country’s systemically important banks.

The agreement wasn’t “quite ready” late yesterday, and a final accord is expected today, Conservative Party spokesman for Denmark’s parliament business committee, Brian Mikkelsen, said in a text message.Benny Engelbrecht, business committee spokesman for the ruling Social Democrats, confirmed a deal has yet to be struck. The two rejected reports in local media that an agreement had already been reached yesterday.

The final bill, which would require a group of lenders led by Danske Bank (DANSKE) A/S to hold more capital than their smaller competitors, is based on a proposal put forward by a government-appointed committee in March. Once parliament’s business committee agrees on the wording of the legislation, the bill’s passage into law is a formality.

An accord would mark the latest example of Scandinavian legislators moving faster on bank regulation than the rest of Europe as near record-low interest rates distort credit and housing markets in some of the world’s richest economies. In Sweden, the four biggest banks must hold at least 12 percent core Tier 1 capital of risk-weighted assets by 2015, a target Norway’s largest lenders must meet by 2016. The European Union has yet to enforce rules for systemically important banks.

Trigger Levels

Danish talks on too-big-to-fail banks had been hampered by lawmaker disagreement over trigger levels at which debt converts to equity and at which management loses its freedom to dish out dividends and bonuses.

A chief obstacle to reaching an accord has been disagreement over how far capital levels can fall before a Sifi is restricted from paying dividends and interest payments, its management is replaced or it is taken over by regulators. The Sifi committee’s proposed triggers are too high and would force banks to pay more for capital than foreign rivals, the industry has said.

A government-appointed committee in March recommended that Danske Bank, Nykredit Realkredit A/S, Jyske Bank A/S (JYSK), Sydbank A/S (SYDB), Nordea Bank AB (NDA)’s Danish unit and BRFkredit A/S be named Sifis. The country’s fifth-largest mortgage lender, DLR Kredit A/S, said in March it would seek to be considered a Sifi.

Like Sweden’s biggest banks, the largest Danish lenders have combined assets that are about four times the nation’s gross domestic product. Danske Bank alone has assets that are more than 180 percent of GDP. A government committee last month said Danske Bank’s expansion before the crisis, including its decision to move into Ireland in 2005, put the entire Danish economy at risk. The committee said regulators were too lax before the crisis and shouldn’t cave in to industry pressure now to ease requirements.

To contact the reporter on this story: Peter Levring in Copenhagen at plevring1@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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