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Denmark Says EU-Wide Regulator Hampers Bubble Fighting

Danish Economy Minister Margrethe Vestager
Danish Economy Minister Margrethe Vestager said, “It is very important that there are macro-prudential tools for each member state in order to make sure that you do not build up housing bubbles and other things.” Photographer: Jock Fistick/Bloomberg

Denmark is unwilling to sign up to a European banking authority and warns such a model could rob national regulators of the tools they need to prevent asset bubbles from forming in local markets.

“It is very important that there are macro-prudential tools for each member state in order to make sure that you do not build up housing bubbles and other things,” Danish Economy Minister Margrethe Vestager said in an interview in Oslo yesterday. “Tools so that you can calibrate the risk weights in your banking system.”

Denmark’s lenders have yet to emerge from a regional banking crisis triggered by a burst housing bubble more than four years ago. House prices have tumbled more than 20 percent since their peak in 2007 and will decline 5.5 percent this year, the government estimates. The country’s financial regulator has told banks to comply with stricter writedown standards after finding a number of lenders understated their impairment risk.

Thanks to “first-hand experience, I have some reluctance in having a really thorough European authority, if that would mean that you would dismantle all national tools or national authorities in that respect,” Vestager said.

First Step

Euro-area nations, after agreeing in Brussels last week to ease the terms of Spain’s bank bailout, plan to set up a single European banking supervisor as a first step toward enabling direct recapitalization of the region’s lenders. A regional regulator would affect Nordic bank supervisory work even if Scandinavian countries including Denmark don’t sign up, Vestager said.

In neighboring Sweden, the financial regulator has told the country’s four biggest banks to target stricter rules than those set in the rest of Europe in an effort to protect taxpayers from losses. Swedish Prime Minister Fredrik Reinfeldt reiterated his country’s opposition to a European Union-wide regulator on June 27. While a regional bank authority will include all 17 euro members, EU countries with their own currencies can opt out.

“Of course we have the highest degree of respect for the euro countries, that they may need to take steps towards further integration because of the insecurities of the euro zone,” Vestager told reporters. “We would like to participate in the debate, but we have some skepticism.”

Nordic banks remain “solid” and comply with requirements set by the Basel Committee for Banking Supervision, Norwegian Finance Minister Sigbjoern Johnsen told reporters in Oslo yesterday.

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