Denmark details SIFIs requirements in new bank package

The Danish government announced a new package of bank regulations today (Thursday), including details on the capital requirements for systemically important financial institutions (SIFIs).

The proposals have been agreed upon by a broad range of political parties, including those outside the governing coalition that have supported previous bank packages. The government said it will introduce legislation to enact the new package as soon as possible.

“I am very pleased that we now introduce the strictest requirements for banks and mortgage-credit institutions, and especially for the SIFIs, since the introduction of the Basel-system,” said Henrik Sass Larsen, minister of business and growth. “It is essential that we strengthen the soundness of banks and mortgage-credit institutions in order to better withstand future financial crises.

“By concluding this agreement, we are sending a clear message that Denmark has a strong sector of banks and mortgage credit institutions.”

A key element of the new package are SIFI capital requirements set to reflect the importance of banks’ systemic importance. These have been set for seven banks and mortgage credit institutions: Danske Bank 3.0%; Nordea Bank Denmark 2.0%; Nykredit 2.0%; Jyske Bank 1.5%; Sydbank 1.0%; BRFkredit 1.0%; DLR Kredit 1.0%

The only difference between these SIFI capital requirement levels and those proposed by a Ministry of Business & Growth SIFI committee in March is for Danske Bank, with its 3.0% level being lower than the 3.5% proposed by the committee. As with several elements of today’s package, the other levels are unchanged from what was recommended in March and are based on the size of the banks’ total balance sheet relative to GDP and market shares of loans and deposits.

The final identification of SIFIs and their SIFI capital requirements will be made by 30 June 2014 based on updated data including this year’s financials. The SIFI capital requirements will then be phased in between 2015 and 2019.

Alongside the SIFI requirement, on top of a minimum total capital standard of 8% of RWA a capital conservation buffer of 2.5% will be implemented in accordance with the Capital Requirements Directive (CRD IV) and phased in from 2016 to 2019. The framework for a counter-cyclical buffer of up to 2.5% will be phased in from 2015, starting at 0.5%, to 2019.

The plans hold out the prospect of the capital requirements being tweaked during the phasing in period to reflect levels being set internationally.

The planned legislation will more generally also transpose into Danish law the Capital Requirements Directive and Regulation (CRD IV).

Legislation relating to stable funding requirements will be discussed at a later stage, after the Ministry of Business & Growth presents proposals for discussion with other political parties.

Regulations relating to the resolution of failing banks, excluding SIFIs, will also not be negotiated until next year.

Today’s proposals also include establishing a governing board for the Danish FSA and giving it new supervisory instruments and powers.