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COPENHAGEN: Denmark is poised to raise the capital requirement for six banks identified as being too big to fail in a government committee report released yesterday.
Danske Bank, Nykredit, Nordea Bank Danmark, Jyske Bank, BRFkredit and Sydbank were listed as being the country’s so called Systemically Important Financial Institutions (SIFIs), in a report handed over to Minister for Business and Growth Annette Vilhelmsen. “Danish SIFIs should become subject to an additional capital requirement of common equity Tier 1 capital of one to 3.5 percent of the risk-weighted assets,” committee chairman Michael Moeller, wrote in a letter to the minister. Tier 1 capital is a core measure of a bank’s ability to withstand sudden financial shocks.
The committee suggested raising the trigger for crisis management of a bank to around 10 percent of total capital, compared with the current eight percent threshold. “The government generally supports the recommendations from the committee,” Vilhelmsen said in a statement.
“These institutions are so large that it can affect the entire financial system and the economy as a whole if they get into trouble,” she added. Financial observers said the committee’s proposals would result in higher costs for consumers. “Bank customers will pay a higher price so banks can make more money and raise the capital that’s required of them,” John Norden, founder of financial website Mybanker told daily Politiken.
Denmark has been dipping in and out of recession since the financial meltdown of 2008, as its banks buckled under a more than 20-percent fall in property prices and toxic loans to debt-laden farmers.AFP