A report published on Thursday by the nation’s Sifi committee revealed that Danske Bank, Nordea Bank’s Danish unit, Jyske Bank and Sydbank, as well as mortgage lenders Nykredit and BRFkredit, had all been designated as “systemically important financial institutions,” thereby requiring the institutions to hold between 2.5 to five percent in additional capital, Bloomberg reports.
“The larger we set the capital requirement, the lower the risk of government having to provide a bailout,” Michael Moeller, the chairman of the Sifi committee, said, according to Bloomberg. “[The requirement] is an incentive for shareholders to be on top of banks.”
Legislators will now have to negotiate the recommendations, and the nation’s Conservative Party has already vowed to fight the additional capital requirements. The country has attempted to impose stricter capital requirements on the largest banks following a property crisis that eliminated more than 12 regional lenders since 2008 and put the economy into a recession.
“The capital requirements laid out in the report will lead to interest rates increasing and banks cutting lending, so they’ll have to change,” Brian Mikkelsen, a Conservative parliamentary committee member, said, Bloomberg reports. “Our concern is that banks won’t be able to facilitate the lending needed for the economy to grow and that Danish banks won’t operate on a level playing field with foreign peers.”
The committee also said in the repot that Denmark’s bail-in legislation is inadequate and could put the economy at risk if a SIFI is resolved under the current framework.
“To protect the economy, it will be necessary to allow systemic functions of a SIFI in distress to keep operating, rather than winding up the entire institution,” the report said, adding that finding a buyer may be “very uncertain,” according to Bloomberg.
Additionally, the report said that all the SIFI banks held capital in the fourth quarter of last year that exceeded the proposed additional requirements.