Photographer: Freya Ingrid Morales/Bloomberg

Denmark Wants the EU to Roll Back These Financial Regulations

Updated on
  • Danish business minister says he now favors deregulation
  • Minister to target EU level talks to discuss rule reversals

Denmark wants the European Union to roll back some financial regulations, arguing the existing framework hits big and small banks indiscriminately.

The business minister, Brian Mikkelsen, has ordered a probe into how other EU countries implement rules to see whether there’s any leeway to take a more relaxed approach within the current framework. He also wants a broader discussion “at the European level” to explore whether any existing rules can be reversed, he said in an interview in Copenhagen.

Mikkelsen, who joined the center-right government two months ago, last ran the business ministry when Denmark in 2011 became the first EU nation to force losses on senior bank creditors. The country’s bail-in package became a model for Europe as the bloc worked toward the Bank Recovery and Resolution Directive designed to shield taxpayers from losses.

A lot of financial regulation, such as Denmark’s bail-in package, was put together quickly and its sudden implementation is something the 51-year-old Mikkelsen says he regrets. His goal now is deregulation, which he says is needed to support economic growth.

Read more: Danish FSA strikes a tougher tone than government

Denmark is likely to get a sympathetic ear in Europe. The EU’s Financial Services Commissioner Valdis Dombrovskis has already signaled he’s in favor of simplifying the regulatory environment for smaller banks.

Read more: U.S. regulators take a hard line against EU on capital rules

But Mikkelsen is even more ambitious. He says he wants to “pamper Danish businesses. That also goes for the financial sector. And I want to investigate whether we can cut demands on Danish financial institutions.”

Read more: Banks Face Deregulation Era in Denmark With New Minister at Helm

Denmark has a patchy history when it comes to its experiences since the financial crisis. Before 2008, the country had more than 140 lenders. Fewer than 80 survived, following a property market crash and an agricultural crisis across rural Denmark, with many farmers unable to repay their loans.

The government passed a series of packages designed to support the banks through the turmoil. In 2010, lawmakers signed a bill that allowed bail-ins. Though the package itself got little attention when it was made into law, it shocked markets when it was tested in February 2011, as Amagerbanken became the first EU lender to renege on obligations to senior creditors.

The fallout was severe. Most Danish lenders were shut out of wholesale funding markets. Even Danske Bank A/S, the country’s biggest lender, saw investor confidence sink, with credit default swaps surging to about 70 times their level in 2006.

Since then, Denmark’s biggest banks have built their capital positions, turning investor sentiment around, and Danske is now among Europe’s best-performing banks. Its default swaps again trade around pre-crisis levels and its shares last year trounced Bloomberg’s benchmark index for European financial stocks.

As business minister, Mikkelsen also shapes the laws that guide Denmark’s $650 billion pension and life industry. The country’s regulator has asked for greater powers to monitor insurers after warning that funds are taking on bigger risks to generate returns. Mikkelsen said he will look into the matter, but added that he has already spoken with industry representatives, who provided “really good explanations” as to why stricter rules aren’t warranted. “But on the other hand, I also have an obligation toward consumers,” he said.

The regulator tends to be “zealous” in its oversight of many areas, Mikkelsen said. The head of the agency, Jesper Berg, has “asked for more tools, and that’s why I’ve said I’ll look into it. But I can’t make a decision until I understand what the actual issue is.”

Mikkelsen says he’s aware that scaling back regulation is unpopular with the electorate.

“But if you only have defenders in your football team, you’ll never score a goal,” he said.

— With assistance by Frances Schwartzkopff

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