Denmark’s Central Bank Scales Back Emergency Measures for Banks

Denmark’s central bank will scale back emergency measures put in place at the height of the financial crisis amid signs the nation’s lending markets have stabilized.

The central bank will from July stop offering six-month loans at its benchmark lending rate, 0.2 percent since May, and will no longer accept equities and bank loans as collateral, it said in a statement today. Loans already taken out will continue until maturity, the bank said.

The central bank said in October it was firing 10 percent of its workforce, or 55 people, originally employed to help Denmark through the worst financial crisis since the Great Depression. The central bank provided lenders in the $340 billion economy with two longer-term refinancing operations last year, after earlier maturity extensions proved too small to stabilize the industry.

“The development in the financial markets and in the sector is now stable,” the central bank said today. “What’s more, use of the extended lending facilities at the central bank has been limited.”

Denmark, which uses monetary policy to defend the krone’s peg to the euro, suffered a housing market slump in 2008 that fueled a community banking crisis which wiped out 62 lenders. The nation’s decision to become the first in the European Union to pass bail-in legislation in 2010 has also hurt Danish banks, whose funding costs surged after creditors balked at the prospect of sharing losses.

Governor Lars Rohde, who last month decided not to follow a European Central Bank interest rate change for the first time since 2008, said in September there was no need for more longer-term loans to support banks.

Lenders placing funds with the Danish central bank must pay to do so. Denmark’s deposit rate is minus 0.1 percent and Rohde has said there is no limit to how far the rate can fall to defend the currency peg.

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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