DANMARKS NATIONALBANK Bank resolution Danish experiences. Jens Lundager, Assistant Governor 29 January 2013

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1 DANMARKS NATIONALBANK Bank resolution Danish experiences Jens Lundager, Assistant Governor 29 January 2013

2 Number of banks in Denmark Note: The chart is based on the Danish Financial Supervisory Authority s groups 1-4 at the end of Source: Danish Financial Supervisory Authority and own calculations.

3 Heterogeneous banking sector Assets in Danish banks Note: The chart is based on the Danish Financial Supervisory Authority s groups 1-3 on 3 quarter 2012 data. Kilde: Danish Financial Supervisory Authority and own calculations.

4 Background No resolution mechanism for winding up banks before crisis Danmarks Nationalbank took over Roskilde Bank, Aug 2008 General Government Guarantee, Oct Oct 2010 Without a resolution regime, the General Government Guarantee would implicitly continue with no financial sector payment Resolution scheme for winding up banks October 2010 and amended August 2011 to facilitate private sector solutions

5 Danish Resolution Regime (Bank Package 3) 1. Assets of the distressed bank are transferred to a subsidiary bank of the Financial Stability Company (New Bank) 2. New Bank purchases the assets at a conservative value and finances the transaction by taking over non-subordinated liabilities of the same amount 3. Share capital and other subordinated capital will not be transferred (i.e. lost) 4. Depositors are covered up to 100,000 euro DGS Directive 5. Other non-subordinated liabilities must anticipate haircut

6 Transactions during the winding-up process Share capital Financial Stability Company Liquidity Risk premium Guarantee Commission Winding-up department Deposit Guarantee Scheme Assets Distressed Bank Liabilities New Bank Covered Deposits Banking department Claim

7 Timeline for transfer Transfer is effected, reduction of Distressed bank announces that it accounts etc. wants to be wound up under resolution scheme The bank provides information about FSA deadline expires deposit and loan accounts FSA sets deadline for meeting capital requirements Valuation New Bank opens 4 pm 10 pm 10 pm 7 pm 10 am Friday Saturday Sunday Monday

8 Assets and liabilities of bank in distress Assets Liabilities Write-down of lending portfolio due to impairment Equity Equity Write-down to estimated realisable value Subordinated capital Subordinated capital Intermediate outstanding balance Preliminary haircut Lending other and assets Deposits and other senior debt Liabilities taken over by New Bank

9 Two troubled banks handled under Bank Package 3 Amagerbanken A/S (February 2011) Market share around 1 per cent Initial haircut of 41%; semi-final haircut of 15% Fjordbank Mors A/S (June 2011) Market share around 0.5% Initial haircut of 26%; semi-final haircut of 14%

10 Financial Stability Company, total assets Kr. billion Fionia Bank and Gudme Raaschou Bank kr billion Roskilde Bank kr billion Capinordic Bank kr. 0.8 billion Eik Bank group kr billion Amagerbanken kr. 29 billion Fjordbank Mors kr billion Max Bank kr. 4.5 billion Sparekassen Østjylland kr. 1.7 billion EBH Bank kr. 9.7 billion Løkken Sparekasse kr. 1.3 billion 0 Source: Financial Stability Company.

11 Danish experiences It is possible to handle a distressed small or medium sized Danish bank over a weekend so that it can reopen Monday morning with full service Credible resolution mechanism is facilitating private sector solutions Danish depositors are very conscious about the Deposit Guarantee Fund coverage; >80% of deposits are covered Funding costs may have risen for Danish banks first mover Important to have common resolution regime

12 Moody s long-term ratings Aaa 20 Aa A1 14 A3 Baa2 12 Ba1 10 Ba3 8 B2 6 Caa1 4 Caa3 2 0 Danske Bank Nordea AB DNB Swedbank SEB Handelsbanken Baseline credit assesment Support

13 Political agreement, 25 August 2011 There are also SIFIs in Denmark Committee on SIFIs shall advice on Identification of Danish SIFIs Requirements and safeguards to Danish SIFIs How to handle distressed Danish SIFIs Will report before March 2013