COPENHAGEN, March 4 (Reuters) - Capital requirements for Danish mortgage banks will probably be tightened when the European Union adapts proposals from the Basel Committee on Banking Supervision, Denmark’s business minister Troels Lund Poulsen said on Friday.
Danish politicians and financiers have long lobbied against higher capital requirements for the mortgage sector, arguing it would add unnecessary costs to a system that has worked for more than 220 years without a single default.
However, Poulsen said it was essential for international investors’ trust in the country’s $400 billion covered, or mortgage-backed, bond market that it was under EU regulations, and that would probably mean some degree of tightening.
“It would be naïve to imagine that there won’t be higher capital requirements for Danish banks and mortgage banks once the proposals from the Basel committee are being implemented into new EU regulations,” Poulsen told Reuters.
Poulsen met with EU Commissioner for Financial Stability Jonathan Hill in Copenhagen on Friday. Hill said he believed it would be possible to find a “sensible solution” for the Danish mortgage sector, which is vital to the country’s economy.
“I will take into account that there are different kinds of financial models in Europe and the covered bond model is an example of that. Whatever comes from Basel, I will look at it in a balanced way,” Hill said.
“If we need to deviate from the Basel-solution in the interest of the European economy we shall do it. We have done so in the past and can do it again in the future.”
The EU Commission decided in 2014 after heavy Danish lobbying that Danish banks could cover up to 70 per cent of their so-called liquidity requirements (LCR) with Danish covered bonds. The first proposal from the Commission was that it should be at most 40 percent.
Denmark’s largest mortgage lender Nykredit recently said it would hike fees paid by lenders due to higher capital requirements. The move has been strongly critised by its customers and politicians.
Nykredit said in February it aimed to list its shares within 1-2 years to cope with capital requirements.
$1 = 6.7636 Danish crowns Reporting by Erik Matzen; Writing by Teis Jensen; Editing by Mark Potter