COPENHAGEN, Feb 6 (Reuters) - The Danish centre-left minority government has reached a deal with the opposition parties on its proposal to tackle the risks mortgage banks face when they refinance adjustable-rate bonds at large annual auctions.
“Now we have a broad political agreement,” Minister for Business and Growth Henrik Sass Larsen said on Danish TV channel TV2 News.
Denmark has the third-biggest covered bond market in the world after the United States and Germany. Covered bonds are used by banks to finance home loans and are refinanced at large auctions every year, when around 930 billion Danish crowns ($170 billion) worth of one-year adjustable rate mortgage bonds are sold.
Credit rating agencies and the European Commision have raised concerns about them, saying banks are at risk should international debt markets freeze up.
To cut the refinancing risk, the government has proposed that if an auction fails, or produces an interest rate more than 5 percentage points higher than the rate at which the bond was originally offered, then the bond would be extended by 12 months at a time.
Credit rating agency Standard & Poor’s on Wednesday said that the government’s proposal does not fully eliminate the risk from the banks’ heavy reliance on short-term funding. (Reporting by Teis Jensen; Editing by Greg Mahlich)