`Brexit' Fears Embolden Denmark to Draw Bank Regulation Line

Denmark says it may have gone too far in adopting European financial rules as it looks for ways to preserve its $400 billion mortgage bond market.

“I imagine that we may amend any over-implementation of what came from Brussels,” Business Minister Troels Lund Poulsen said in an interview.

The Danes are pushing for greater regulatory freedom from the European Union as the U.K.’s efforts to reset its relationship with the bloc open the door to intense haggling across the region. A deal intended to satisfy Prime Minister David Cameron, and avoid a British exit from the EU -- a scenario dubbed Brexit -- may include two-track banking rules for EU countries inside and outside the single currency area, potentially giving non-euro-zone nations more flexibility.

Denmark has repeatedly shown a determination to protect its prized mortgage finance system from external regulation. The country beat back a plan by the Basel Committee on Banking Supervision to downgrade the liquidity status of mortgage-backed covered bonds, and Danish banks can now hold 75 percent more of the securities in liquidity buffers than intended by the global regulator.

Poulsen’s ministry is now preparing a report, which he says will be ready in the spring, to investigate specific regulatory areas in which Denmark may have shown too much zeal. “First and foremost we need to analyze this before taking any action,” he said.

In a letter to the European Commission, Denmark urges the EU’s executive arm to opt for a “directive and not a regulation” in its treatment of covered bonds. That would give individual nations more flexibility to set their own rules, Poulsen says.

“More generally, proposals to implement global standards in the EU should continue to take into account European specificities, including well-functioning national business models,” he said.

“We generally have to calm down on future regulation,” he said. “Otherwise, we end up choking ourselves in excessive rules.”

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