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    DFSA Publishes Guidance on Capital Adequacy and Solvency Requirements

    January 05, 2022

    The Danish Financial Supervisory Authority (DFSA) published the final 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. Additionally, DFSA has established requirements for impairment liabilities (“NEP requirements”) for the systemically important financial institutions in Denmark and Faroe Islands. For the Danish systemically important financial institution, the NEP requirement has been set as a “percentage of the total risk exposure for the company and the total exposure target for the company.”

    The general settlement principle for systemically important financial institution is that they must be able to be restructured and return to the market with sufficient capitalization to ensure market confidence. The NEP requirement is determined annually in accordance with the rules in the Financial Business Act. The NEP requirements for Danish systemically important financial institution have been determined in accordance with the revised Bank Recovery and Resolution Directive (BRRD2), which was implemented in Danish legislation with effect from December 28, 2020. Additionally, for BankNordik and Betri Banki, the same approach has been used as at last year's setting of NEP requirements, as BRRD2 has not yet been implemented in the Faroe Islands.

     

    Related Links (in Danish)

    Keywords: Europe, Denmark, Banking, Regulatory Capital, Credit Risk, Market Risk, Liquidity Risk, Operational Risk, BRRD2, D-SIBs, Systemic Risk, Basel, DFSA

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