The international financial crisis has affected financial markets in Denmark, frozen the money market and severely impeded the access to liquidity for many banks.
The situation is regarded with great concern given the international market-failure where even healthy banks are having trouble getting access to liquidity. This threatens financial stability in Denmark and if unadressed may cause significant disruptions to firms and households.
The Danish government will extend a safety net so that all claims by depositors and senior debt (unsecured unsubordinated debt) are fully covered. The Danish government has thereby provided a two-year guarantee for all deposits with and unsecured claims against banks and saving banks with a banking licence in Denmark. This will safeguard financial stability by contributing to facilitate the resumption of interbank lending.
In order to be non-discriminatory on the Danish market, branches in Denmark of foreign banks can receive coverage for deposits of a type covered by the Danish Deposit Guarantee Scheme, in case they are not covered by a similar arrangement in their country of origin.
The cover is established through a joint agreement between the government and the financial sector. The agreement includes that the financial sector pays a guarantee commission for the Kingdom’s guarantee. The financial sector must absorb a portion of potential losses up to 2 per cent of GDP that might be incurred.
The banking industry must complement the safety net by displaying a cautious approach and strengthening their balance sheets during the two year period. Therefore, the safety net is combined with a ban on dividend payments and share repurchases by banks.
Vice Prime Minister and Minister of Economic and Business Affairs, Lene Espersen says:
“In order to promote confidence in interbank lending and secure financial stability, we provide a safety net so that all claims by depositors and senior debt are fully covered by a state guarantee in the next two years.
However, we do this in a non-discriminatory way. And the banks will pay a market conform guarantee commission.”
