Denmark’s Too-Big-to-Fail Bank Proposal Hits Lawmaker Opposition

Denmark’s opposition bloc said a proposal to raise capital buffers for the biggest banks is too draconian as lawmakers fail to find common ground on how to treat the lenders.

The Liberal and Conservative parties are signaling they’ll probably vote against a proposal laying out standards for Denmark’s systemically important financial institutions, their parliamentary business committee spokesmen said.

The government-appointed Sifi committee in March identified Denmark’s six biggest banks as systemically important to the $300 billion economy and argued the lenders should hold as much as 5 percent extra capital. The move is the latest in a string of steps that has placed Denmark at the forefront of regulatory reform in the European Union. The nation in 2011 forced losses on senior creditors in the EU’s first bail-in. Legislators in the 27-nation bloc have yet to agree on too-big-to-fail rules for banks.

“We don’t need to be first movers on this in Europe,” Kim Andersen, the parliamentary business committee spokesman for the Liberal Party, said in an interview. “We would like the capital requirements to be lower.”

Andersen’s counterparts at the Conservative Party, Brian Mikkelsen, and the Danish People’s Party, Hans Kristian Skibby, agree, the two said in interviews. The Social Democrat-led government of Prime Minister Helle Thorning-Schmidt needs the support of the Liberals and Conservatives to pass the Sifi proposal because the two parties are in an accord group on bank regulation in which unanimity is required.

‘Snail’s Pace’

“We should move at a snail’s pace on this to avoid implementing too much regulation and wait for the rest of Europe,” Skibby said.

Denmark’s economy contracted 0.7 percent in the final three months of last year and may have shrunk in the first quarter, according to estimates by Svenska Handelsbanken AB and Danske Bank A/S. Denmark is the Scandinavian nation hardest hit by the debt turmoil raging in the euro zone as it struggles to emerge from a burst housing bubble and regional banking crisis.

“This will have consequences,” Andersen said. “If we want to get an economic upturn going we shouldn’t limit the access to credit too much.”

Business groups including the Confederation of Danish Industry have argued that additional capital requirements risk choking capital and hurting their members. Small and medium-sized businesses employ about two-thirds of the nation’s workforce.

Dwarfing GDP

The March 14 proposals identified Danske Bank, Nordea Bank AB’s Danish unit, Jyske Bank A/S, Sydbank A/S and mortgage lenders Nykredit A/S and BRFkredit A/S as systemically important. The banks should hold 2.5 percentage points to 5 percentage points in additional capital relative to their risk-weighted assets, the Sifi committee found.

Denmark’s financial industry has assets that are nearly four times the size of the economy. Danske Bank’s assets alone are close to twice Denmark’s gross domestic product.

Government lawmakers have shown willingness to ease some parts of the Sifi proposals. Benny Engelbrecht, who heads parliament’s business committee for the ruling Social Democrats, said in an interview this month lawmakers may be ready to consider softer regulatory triggers at which Sifis must convert debt into equity.

Banks have also lobbied lawmakers to introduce more explicit language into the final legislation on government backing. The current proposal is too vague, Danske Bank Chief Financial Officer Henrik Ramlau-Hansen said in a May 2 interview. Sifis should be exempt from Denmark’s bail-in laws, he said.

That’s unlikely to happen, according to Engelbrecht.

“We won’t back giving Danish Sifis explicit government support,” he said this month.