Featured Product

    IMF Publishes Reports on 2019 Article IV Consultation with Denmark

    IMF published its staff report and selected issued report in context of the 2019 Article IV consultation with Denmark. Directors welcomed the overall soundness of the banking sector and recommended a combination of micro- and macro-prudential tools to increase buffers, in addition to the countercyclical capital buffer (CCyB), if risks continue to build up. Directors considered that high household leverage amid elevated house valuations requires coordinated policy action. To reduce the identified vulnerabilities, they suggested enhancing the macro-prudential toolbox, for example, by increasing the focus on income-based macro-prudential instruments.

    The staff report highlighted that the banking system remains profitable, liquid, and solvent. While profitability has decreased, it remains solid, despite slow credit growth, low interest margins, and the introduction of IFRS 9. System-wide non-performing loans remain low but vary across medium-size banks and systemically important institutions (SIFIs). The liquidity coverage ratio of Danish banks is comfortably above the current minimum requirement of 100%. Banks have ample capital buffers as confirmed by the 2018 EBA and Danish central bank stress tests. However, pockets of vulnerabilities remain. Lending surveys suggest that some banks are relaxing credit standards for corporate loans. Close interlinkages across the Nordic financial system expose banks to regional spillovers as the temporary (end-2018) increase in systemic risk measures, such as joint default probabilities of banks in the region, suggest.

    The assessment shows that the financial regulatory framework in Denmark has been strengthened and additional capital buffers are being built. The Danish Financial Supervisory Authority (DFSA) completed the implementation of the final stage of the Banking Recovery and Resolution Directive (BRRD). Banks are now subject to minimum requirements for own funds and eligible liabilities (MREL) requirements, while mortgage credit institutions are exempted but must hold a debt buffer. The Systemic Risk Council recommended raising CCyB from zero to 1.5% by June 2020, amid risk build-up related to the low interest-rate environment. If risks continue to build up, a combination of micro- and macro-prudential tools should be used to increase buffers, including revisions to risk-weights, Pillar 2 requirements, SIFI and capital conservation buffers, and CCyB. To improve the calibration of tools and support financial stability surveillance, the IMF staff recommends further refining frameworks to assess systemic risk; this should include a macro-prudential stress test to quantify losses due to contagion across mortgage credit institutions, and the pension and household sectors. Extensions to estimate losses due to contagion across banks in the region should also be considered.

    The housing market plays a vital role in Denmark, reinforcing macro-financial linkages. Insurance companies, pension funds, and foreign investors are among the largest holders of covered bonds, which are issued by mortgage credit institutions to fund household mortgages. In an economy with elevated house prices, rules targeting loan-to-value become less binding. Thus, increased focus on income-based measures, including debt-to-income, loan-to-income, and debt-service-to-income might be more effective to address high leverage and encourage faster amortization. A review of the efficacy of policy implementation is encouraged, including a review of institutional arrangements. Experience from other countries indicates that improvements in timeliness can be achieved by assigning independent authorities a macro-prudential mandate, which includes legal powers to implement macro-prudential policy with the corresponding transparency and accountability requirements. The Danish authorities see the macro-prudential framework as well functioning, including the timeframe for the CCyB implementation.


    Related Links

    Keywords: Europe, Denmark, Banking, Insurance, Article IV, CCyB, LCR, MREL, Systemic Risk, Stress Testing, Macro-Prudential Policy, IMF

    Featured Experts
    Related Articles
    News

    EBA Single Rulebook Q&A: Second Update for September 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to three questions.

    September 13, 2019 WebPage Regulatory News
    News

    PRA Revises Branch Return and Updates Guidance for Regulatory Reports

    PRA published the policy statement PS17/19, which contains the final policy related to changes in the format and content of the Branch Return Form and reporting guidance.

    September 12, 2019 WebPage Regulatory News
    News

    ECB Publishes Version 1.5 of AnaCredit Validation Checks

    ECB published Version 1.5 of the AnaCredit validation checks.

    September 12, 2019 WebPage Regulatory News
    News

    FINMA Outlines Treatment of Stablecoins in Supplement to Guide on ICO

    FINMA published a supplement to its initial coin offerings (ICOs) guidelines, outlining the treatment for stablecoins under the Swiss supervisory law.

    September 11, 2019 WebPage Regulatory News
    News

    FCA and BoE Issue Updates on Brexit Preparations for Financial Sector

    FCA and BoE published important information to help regulated firms in preparing for Brexit.

    September 11, 2019 WebPage Regulatory News
    News

    Ursula von der Leyen Presents Structure of Next European Commission

    President-elect Ursula von der Leyen has presented her team and the new structure of the next European Commission.

    September 10, 2019 WebPage Regulatory News
    News

    FED Proposes to Revise and Extend Reporting Form on Systemic Risk

    FED proposed to extend for three years, with revision, the Banking Organization Systemic Risk Report (FR Y-15; OMB No. 7100-0352).

    September 10, 2019 WebPage Regulatory News
    News

    EBA Issues Revised List of Validation Rules for Reporting

    EBA published the revised list of validation rules (version 2.9) in its implementing technical standards on supervisory reporting.

    September 10, 2019 WebPage Regulatory News
    News

    Bundesbank Publishes Supplementary Validation Rules for Reporting

    Bundesbank published the updated document containing supplementary validation rules in the context of the implementation of the reporting system at national level.

    September 10, 2019 WebPage Regulatory News
    News

    APRA Licenses Xinja Bank as Authorized Deposit-Taking Institution

    APRA granted Xinja Bank Limited a license to operate as an authorized deposit-taking institution without restrictions, under the Banking Act 1959.

    September 09, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3807