Denmark’s banks are preparing a campaign that will target the country’s lawmakers in an effort to prevent the nation exceeding European regulatory standards.
Politicians from the government and opposition will this month be invited to a town hall meeting arranged by the Association of Danish Mortgage Banks to hear academics, industry representatives and business groups address the potential impact of the new rules, said Peter Jayaswal, a deputy director for the Copenhagen-based association.
“Our hope is that we can shed some light on the issues,” Jayaswal said in an interview. “One might question how all these regulations have an impact on growth and job creation, which is the main issue for Denmark now.”
Denmark has placed itself at the forefront of regulatory reform in the European Union. The nation in 2011 forced losses on senior bank creditors in the EU’s first bail-in. In March, a government-appointed committee unveiled proposals that would add as much as 5 percentage points in capital requirements for systemically important financial institutions. The European Union has yet to present its Sifi standards.
Denmark can’t afford to be in the vanguard of bank reform, industry and business groups said in comments filed last month with the business ministry, which is drafting the legislation. They called for changes, including a delay in adopting a crisis management framework for Sifis until EU plans are clearer.
“The experience from Denmark’s going it alone on bail-ins dictates common EU rules in this area,” the Danish Agriculture and Food Council said in an April 19 statement. The 2011 bail-in locked most lenders out of wholesale funding markets.
Denmark’s biggest banks, led by Danske Bank A/S, would be required to hold as much as 15.5 percent capital against their risk-weighted assets, including a crisis management buffer. That compares with 13 percent for global systemically important banks like JPMorgan Chase & Co. The figures don’t include individual requirements that take business models into account.
Though Denmark’s banks had initially welcomed the prospect of too-big-to-fail designation, the March proposals don’t provide the explicit guarantees of state backing they’d hoped for, Danske Bank Chief Financial Officer Henrik Ramlau-Hansen said in an interview this month. He wants Danish Sifis to be exempt from the country’s bail-in laws to help lower their funding costs, a step he says will help release credit into the economy.
The nation’s financial industry has already won the backing of the opposition bloc, which is signaling it will vote against the March proposals on Sifis. Kim Andersen, Liberal party spokesman for the parliamentary business committee that oversees bank legislation, said the extra capital requirements are too high given the plight of the economy.
Denmark’s gross domestic product shrank 0.7 percent in the final three months of 2012 and probably contracted last quarter, according to Danske Bank and Svenska Handelsbanken AB. Business groups including the Confederation of Danish Industry have argued that additional capital requirements risk choking lending and hurting their members. Small and medium-sized businesses employ about two-thirds of the nation’s workforce.
Danish banks already have raised rates on loans as they struggle to prevent losses following a burst property bubble and tighter regulatory oversight.
The Financial Supervisory Authority said today Denmark’s smaller banks may still be understating risks after conducting a review of six lenders. Banks were “overly optimistic” about how much debt households could bear, the FSA said. The regulator identified more than twice as many troubled clients as reported by the banks, it said.
Denmark’s biggest banks already meet the stricter capital requirements. Danske, which in 2011 was second in Europe only to Bank of Cyprus in the size of its assets relative to GDP, had a total capital ratio of 21.6 percent at the end of the first quarter, the Copenhagen-based bank said May 2.
Lending by Danish banks fell in January to 382 billion kroner ($66 billion), the lowest level in almost seven years, according to central bank data.
Banks also want Sifi proposals, which have yet to be approved by lawmakers, to allow deeper incursions into their regulatory buffers before triggering the conversion of debt into equity. The government has signaled it is willing to consider softer triggers, though it has ruled out the option of bailouts for Sifis.
“The triggers and the Danish rules going further than the European Union: That is what we are opposed to,” Jayaswal said. “There is so much security in the system that we don’t think we need this high level of capital.”