Danish Central Bank Assesses Financial Stability of Banks
The Central Bank of Denmark (Danmarks Nationalbank) published a report on financial stability analysis for the first half of 2022. The central bank also published its response to the European Commission (EC) consultation on the evaluation of State aid rules for failing banks.
The report on financial stability analysis highlights that Danish homeowners are increasingly opting for more risky loans. Housing lending is thus still driven by loans with deferred amortization while variable rate loans have become more widespread. An amortization requirement for homeowners with a high loan-to-value ratio may contribute to a more resilient housing market. The report notes that the liquidity position of the largest banks remains robust and the large systemic credit institutions' earnings increased in 2021. The outbreak of war in Ukraine has not led to a fall in institutions' earnings expectations for 2022. For a number of institutions, core earnings have shown progress in the first quarter of 2022 and several institutions have revised their profit expectations upward. One notable observation is that the latest stress test conducted by the Central Bank of Denmark shows that some large credit institutions come close to breaching the capital buffer requirements in a severe recession; therefore, such credit institutions need their current excess capital to withstand stress.
In its response to the EC consultation on evaluation of the State aid rules for banks in difficulty, the central bank highlights that banks in difficulty should be managed through the crisis management regime. Assessment indicates that the framework for recovery and resolution entails credible resolution plans for all banks of the member states. Therefore, all banks in difficulty must be reconstructed according to the regime; thus, with credible resolution plans in place, a bank in difficulty should not be able to cause a serious disturbance to the economy of a member state. The State aid rules for banks in difficulty should, therefore, not be upheld since the resolution regime is sufficient. However, it cannot be ruled out that the need to grant State aid may arise in absolutely extraordinary situations. In such cases, it is essential for EC to set out specific guidance for banks in difficulty and to verify that the requirements to grant State aid are met.
Keywords: Europe, Denmark, Banking, State Aid Rules, Basel, Financial Stability, Lending, Credit Risk, Regulatory Capital, Resolution Framework, Recovery and Resolution, EC, Central Bank of Denmark
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Related Articles
EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis
The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.
EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules
The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.
BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks
As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.
BCBS and EBA Publish Results of Basel III Monitoring Exercise
The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.
PRA Updates Timeline for Final Basel III Rules, Issues Other Updates
The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.
US Treasury Sets Out Principles for Net-Zero Financing
The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.
EC Launches Survey on G7 Principles on Generative AI
The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.
ISSB Sustainability Standards Expected to Become Global Baseline
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
BCBS Assesses NSFR and Large Exposures Rules in US
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.