Banks Face Deregulation Era in Denmark With New Minister at Helm

  • Danish “bail-in” minister says he regrets former policies
  • Minister says he’s preparing new measures to scale back rules

Denmark formed a new government over the weekend, with the ruling parties advertising their center-right program under the following motto: “richer, freer, safer.”

The man now in charge of bank legislation is leading the way. Brian Mikkelsen, appointed business minister on Monday as part of a cabinet reshuffle to accommodate two new parties in what is now a three-party ruling coalition, told Bloomberg he’s already “preparing measures” that will help “deregulate” the financial industry.

Mikkelsen, a lawmaker in the Conservative Party that’s the smallest member of an administration headed by Liberal leader, Prime Minister Lars Lokke Rasmussen, says the government has already done “a little bit” of the work he wants carried out. “I will continue,” he said. He declined to provide details, other than to make clear the plan is to scale back parts of the existing framework.

It’s not the first time the 50-year-old minister has been put in charge of banks. He last oversaw the industry in 2010-2011. Back then, Denmark became the first European Union nation to impose losses on senior bank bondholders when Amagerbanken A/S failed. The bail-in legislation ended up becoming a model for the EU as the bloc carved out its framework to deal with insolvencies, known as the Bank Recovery and Resolution Directive.

The automatic enforcement of the legislation in Denmark caught investors off guard, and funding costs soared for the few lenders still able to tap the market. By mid-2012, credit default swaps on Danske Bank A/S, the country’s largest lender with assets equivalent to almost twice Denmark’s GDP, had jumped to more than five times their current level as a result of the market shock.

Much of the regulatory pressure that Danish banks have railed against is focused on the country’s mortgage market. The industry warns that global proposals to impose tougher capital requirements will unduly penalize lenders in the world’s largest mortgage-backed covered-bond market. There’s also discussion of how much loss-absorbing debt lenders should hold.

Mikkelsen said he “regrets” some of the regulatory measures taken during his earlier stint as minister, in comments made to FinansWatch.

To be sure, there’s some evidence the current regulatory environment hasn’t been too harmful to Denmark’s banks. Since the end of 2011, shares in Danske Bank have almost tripled in value, with the lender’s market cap now considerably bigger than Deutsche Bank’s.

— With assistance by Frances Schwartzkopff

    Before it's here, it's on the Bloomberg Terminal.