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COPENHAGEN, Dec 19 (Reuters) - European Union finance ministers have agreed a deal that allows Denmark to preserve its mortgage bond industry when the EU sets up a banking union, Danish Economic Affairs Minister Margrethe Vestager told Reuters on Thursday.
The Danish mortgage institutes lend only to Danish home owners and do not take deposits, instead funding themselves through a covered bonds market which currently adds up to about $500 billion.
“The Council has accepted that Danish mortgage institutes, in contrast to banks, should not have to raise their capital requirements,” Vestager said, adding she would now focus on another key target.
“That is to get the highest rating for Danish covered bonds, in line with government bonds. We shall chase that issue after Christmas,” she said.
The mortgage system is based on a direct link between the loans that homeowners take out and the bonds that are issued to finance the loans.
The one-to-one connection is made to ensure financial stability, but the EU negotiations for a banking union had threatened to leave the industry on the sidelines by making Danish mortgages more expensive than regular bank lending.
Dating back to 1795, Danish mortgage institutes helped rebuild Copenhagen after a devastating fire and currently make up Europe’s second largest covered bond market after Germany’s.
Denmark, which is not a euro zone member, has said it will decide whether to join the banking union or not after a final deal has been negotiated. (Reporting by Erik Matzen and Stine Jacobsen, editing by Terje Solsvik and Mark Trevelyan)