Banks Invited to Lobby as Denmark Opens Door to Laxer Rules

  • Burden of proof will still be on bankers, new minister says
  • Minister will defend mortgage banks against new EU regulations

The minister in charge of bank legislation in Denmark -- home to the world’s biggest mortgage-backed covered-bond market-- says he’s open to the idea of scaling back existing rules to accommodate industry demands.

“I’m very willing to listen to the industry,” Troels Lund Poulsen, Danish business minister, said in an interview in his office in Copenhagen on Friday. “The rules we have are not necessarily here to stay. But the burden of proof is with the industry.”

Troels Lund Poulsen

Source: ChinaFotoPress/Getty Images

The comments reveal a shift in Danish policy after the Liberal Party of which Poulsen is a member won June elections. The minister said his position reflects a concern that implementation of European rules may have been “over zealous.” The stance is in contrast to neighboring Sweden’s regulatory approach. Officials there have warned they may tighten rules further, prompting Nordea to set aside 4.6 billion euros ($5.1 billion) in provisions.

“I think we’ve reached the pain threshold for how much we can tighten regulation,” Poulsen said. “I’m not a big fan of the notion that there’s a need for more regulation. What we do need to do is to review the rules we’ve put in place. We might have been a bit too zealous in our implementation.”

The business ministry is now “waiting for the financial industry to tell us which areas they think there’s too much regulation in,” he said. Poulsen’s predecessor, Henrik Sass Larsen, said in early June there probably wouldn’t be much need for more rules, but also underscored that stricter regulation already agreed was “needed.”

Much of the lobbying is likely to come from the country’s $500 billion mortgage bond industry, which has a history of taking on supra-national regulators and winning. The biggest banks operating in that market are Danske Bank’s mortgage arm and Nykredit. Denmark prevailed against a 2010 Basel III rule that would have forced banks to downgrade the liquidity status of covered bonds.

The latest regulatory threats to the industry include a floor that may be applied to risk weights on assets, designed to prevent banks from gaming their capital requirements. Denmark’s mortgage bank industry says the internal models they use are better at determining capital levels than standardized floors.

Poulsen underscored his commitment to ensuring he will do everything to stop international regulation from interfering with the business model used by Denmark’s mortgage banks.

“I will fight the battles that are necessary,” he said. “Defending the Danish system is key for me. And it’s completely critical for me that we don’t agree to anything that results in a compromise for our mortgage finance system.”

The minister also said he plans “to be very active in Brussels, explaining the Danish model.”

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