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    DFSA Issues Guidance on Capital Adequacy and Solvency Requirements

    February 09, 2021

    DFSA published the guidance on capital adequacy and solvency requirement for credit institutions. Post consultation, DFSA has clarified the use of language in relevant places on the basis of the responses received. The guidance sets out benchmarks and calculation methods for credit, market, liquidity, and operational risks. It also sets out special conditions for internal ratings-based institutions, along with information on the stress test calculations.

    The guidance sets out that credit institutions must calculate the solvency requirements in accordance with the institution's risk profile and the conditions under which the institution conducts its business, according to Appendix 1 in the Executive Order on the calculation of risk exposures, capital base, and solvency requirements for credit institution. The guidance contains requirements for large credit institutions regarding sensitivity analyses, including a description of the special risk areas that institutions issuing covered bonds and covered mortgage bonds must observe. Overall, the guidance contributes to a clearer framework for the institutions in the calculation of capital adequacy and solvency requirements.

    In addition to this guidance, DFSA published a report on the study of mortgage loans with long-term grace period. The mortgage loans that are the subject of the study give borrowers the option of a grace period of up to 30 years. The study shows that four largest mortgage banks in Denmark offer mortgage loans to consumers, which allows for long-term repayment freedom and variable interest rates. The study shows that the institutions are aware of the risks that apply in relation to these types of loans and that the institutions, in their guidance processes, ensure that borrowers are aware and clarify that they must be creditworthy in a longer perspective.

     

    Related Links (in Danish)

    Keywords: Europe, Denmark, Banking, Securities, Regulatory Capital, Credit Risk, Market Risk, Liquidity Risk, Operational Risk, DFSA

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