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Danish central bank proposes stricter mortgage bank capital rules
January 18, 2017 / 12:52 PM / a year ago

Danish central bank proposes stricter mortgage bank capital rules

COPENHAGEN, Jan 18 (Reuters) - Denmark’s central bank proposed stricter capital rules for the country’s large mortgage banks on Wednesday in an effort to reduce taxpayer losses and minimize the wider economic impact if one or more of them gets into trouble.

The central bank wants Danish mortgage lenders, which include units of Nykredit (IPO-NYKRD.CO), Danske Bank , Nordea and Jyske Bank, to lose an exemption to a ‘minimum requirement for own funds and eligible liabilities’, known as MREL, and fall into line with other European Union banks.

“It is Danmarks Nationalbank’s clear recommendation that mortgage banks be comprised by the same rules on resolution as other institutions,” the central bank said in a statement.

It said that the cost to homeowners of introducing the MREL requirement to mortgage banks would be between 200 crowns and 1,100 crowns per year for each one million crowns borrowed.

The statement was sent to the Danish FSA which is compiling Denmark’s response to a November proposal from the European Commission for new capital rules, roughly in line with those agreed by the Basel Committee of global regulators.

FinansDanmark, a lobby group for the Danish financial sector, said the mortgage banks already had an adequate resolution model and that long-awaited proposals from the Basel Committee are expected to further increase the requirements.

“The Danish parliament has backed that the Danish mortgage banks should have these exemptions, and the Danish mortgage banks live up to the EU rules for getting such exemptions,” FinansDanmark’s Deputy CEO Ane Arnth Jensen told Reuters.

    The lobby group said last week that the EU proposal would hit the Danish mortgage sector, Europe’s largest, very hard, because the proposed provisions for market risks did not adequately factor in the very low risk of holding Danish mortgage bonds.

    The Danish $400 billion mortgage bond market has not had a single default in its 220-year history.

    Nykredit, Denmark’s largest mortgage bank, said last year that it would increase fees for homeowners and seek a stock exchange listing to prepare for capital requirements from the EU and Basel, triggering protests. (Editing by Alexander Smith)

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