Denmark’s government lashed out at the nation’s banks for deploying what it called spin tactics to try to persuade policy makers to delay regulatory reform.
The nation’s financial industry, which says Denmark risks stalling a recovery by moving ahead with too-big-to-fail rules faster than the European Union, is misleading politicians and businesses with its rhetoric, Economy Minister Margrethe Vestager said. She ruled out slowing down steps toward stricter requirements for systemically important lenders and reiterated her stance that banks won’t get tax breaks to help them through the transition.
“It would be spin to say Denmark is a first mover on financial regulation,” Vestager said yesterday in an interview in Copenhagen. “We’ve been ahead with the bank packages saying we don’t want taxpayers to pay the bill for the mess the banks created -- that was the right thing to do and we did it in a way that kept us in sync with European regulation.”
Denmark’s biggest banks are urging lawmakers to block a March proposal by a government-appointed committee on how to treat systemically important financial institutions. The Sifi committee says the nation’s six biggest banks must hold as much as 5 percent extra capital against their risk-weighted assets. The banks say such requirements are only fair if matched by a guarantee they’ll be exempt from Denmark’s bail-in rule.
The industry, led by Danske Bank A/S and Nykredit A/S, also argues the proposal puts Denmark at the forefront of regulatory reform at a time when businesses are struggling to gain access to credit made more costly by stricter rules. The EU has yet to unveil standards for its too-big-to-fail lenders.
“There is strong evidence that there is little cause for hurrying,” Jesper Berg, head of regulatory affairs at Nykredit, said in an interview. “I am somewhat puzzled by why we cannot wait, see what more countries do, and have a more extensive discussion.”
Banks warn the result of not waiting risks turning into a replay of Denmark’s 2010 decision to pioneer bail-in legislation in the EU, a move that left most of the industry shut out of wholesale funding markets.
Lobby efforts have already won support from opposition Liberal and Conservative party lawmakers, who have indicated they want the proposed Sifi rules eased. The opposition Danish People’s Party also wants laxer rules.
“Capital requirements already provide sufficient protection to prevent taxpayers ever ending up paying to bail out the banks,” Brian Mikkelsen, business spokesman for the Conservative Party, said in a May 22 interview. “More regulation on these banks will only cause a lending freeze and that’s the last thing we need.”
At Danske Bank, Denmark’s biggest lender, the concern is that “higher capital levels mean more expensive lending, and the extra money we could lend if holding less capital would generate more revenue than the money we might save on funding due to the Sifi stamp,” said Thomas Borgen, head of corporates and institutions at Danske. “We need Denmark to implement the same rules as the rest of Europe.”
Vestager isn’t alone in rejecting the banks’ stance. The central bank last week criticised the industry’s efforts to link capital requirements to lending. Deputy Governor Per Callesen said in a May 24 interview the proposed Sifi rules shouldn’t hamper lending growth. He also dismissed the industry’s pleas that they be excluded from bail-in rules.
Denmark’s government cut its economic forecast yesterday as Scandinavia’s weakest economy struggles to emerge from a housing slump and regional banking crisis. Gross domestic product, which contracted 0.7 percent in the final quarter of 2012, will expand 0.5 percent this year, versus an April prediction of 0.7 percent, Vestager’s ministry estimates.
The ruling three-party Social Democrat-led coalition, headed by Prime Minister Helle Thorning-Schmidt, has pushed corporate tax cuts through parliament in an effort to support a recovery and create jobs. Those measures didn’t include banks.
“We don’t have any tax cuts in store for the financial industry,” Vestager said. “What we’re very much aware of in a European context is that national flexibility doesn’t limit the inner market. We need competition on financial services across Europe to cater to those who need financing.”