Danish Sifi Deal Imperiled by Capital Dispute, Nordea Says

Danish efforts to reach an accord on too-big-too-fail bank buffers are being hampered by disagreement over the kinds of capital that can be used, said Anders Jensen, head of Nordea Bank AB’s Danish operations.

“By and large we are there, but some issues remain on exactly what kind of capital to use in some areas,” Jensen said today in an interview in Copenhagen. Nordea Denmark also wants consideration given to the fact the lender can turn to the parent company in Stockholm, he said.

Banks have until today to comment on measures recommended by a government-appointed committee to prevent systemically important financial institutions from defaulting and plunging the economy into chaos. The committee last month named six banks, including Nordea, as too big to fail and advised they hold as much as 5 percent additional capital.

The Business Ministry is taking public feedback before Parliament considers the recommendations. The opposition Conservative Party has already signaled it will try to block the higher capital requirements while the Danish Bankers Association said the measures would force banks to cut lending and imperil an economic recovery.

Under the proposal, Sifis will have to provide additional equity of 1 percent to 3.5 percent of risk-weighted assets and a crisis buffer of 1.5 percent. The Financial Supervisory Authority also may require that equity be used to fulfill so-called pillar 2, or individual solvency, requirements.

“This would be a tightening of the rules as we understand it,” Danske Markets said in a March 14 note.