Danish Lawmakers Extend Sifi Talks After Agreeing on Most Points

Danish lawmakers will continue talks on a bill for systemically important banks this week after initially targeting a deal as early as yesterday.

Members of Denmark’s parliament committee overseeing banks ended yesterday’s meeting after agreeing on a number of key points including which banks are too big to fail and how much capital the lenders must hold, two lawmakers who participated in the talks said. They asked not to be identified by name because the content of the talks is private.

The final bill, which would require a group of lenders led by Danske Bank A/S to hold more capital than their smaller competitors, is based on a proposal put forward by a government-appointed committee in March. Once parliament’s business committee agrees on the wording of the legislation, the bill’s passage into law is a formality.

An accord would mark the latest example of Scandinavian legislators moving faster on bank regulation than the rest of Europe as near record-low interest rates distort credit and housing markets in some of the world’s richest economies. In Sweden, the four biggest banks must hold at least 12 percent core Tier 1 capital of risk-weighted assets by 2015, a target Norway’s largest lenders must meet by 2016. The European Union has yet to enforce rules for systemically important banks.

Danske Buffer

Lawmakers in Denmark are discussing imposing a 3 percent additional buffer on Danske Bank -- less than recommended in the March proposal, according to a different person close to the talks who asked not to be identified by name because the terms of the accord aren’t yet public. All other systemically important banks will probably be asked to build extra capital in line with levels in the March proposal, the person said.

Lawmakers are still struggling to hammer out the final text on a number of key issues including how to tax contingent convertible securities, the person said.

Danish talks on too-big-to-fail banks have been hampered by lawmaker disagreement over trigger levels at which debt converts to equity and at which management loses its freedom to decide payouts. Talks have centered on how far capital levels can fall before a Sifi is restricted from paying dividends and interest payments, its management is replaced or it is taken over by regulators. The March proposals for triggers are too high and would force banks to pay more for capital than their competitors in other countries, the industry has said.

Crisis Lessons

The government-appointed committee in March recommended that Danske Bank, Nykredit Realkredit A/S, Jyske Bank A/S, Sydbank A/S, Nordea Bank AB’s Danish unit and BRFkredit A/S be named Sifis. The country’s fifth-largest mortgage lender, DLR Kredit A/S, said in March it would also seek the designation. Lawmakers said it will probably be included in the list.

Like Sweden’s biggest banks, the largest Danish lenders have combined assets that are about four times the nation’s gross domestic product. Danske Bank alone has assets that are more than 180 percent of GDP. A separate government committee last month said Danske Bank’s expansion before the crisis, including its decision to move into Ireland in 2005, put the entire Danish economy at risk. The committee said regulators were too lax before the crisis and shouldn’t cave in to industry pressure now to ease requirements.