Introduction to the Credit package

On February 3 2009 a wide majority in the Danish Parliament adopted the Act on State-Funded Capital Injections with the purpose of contributing to a normalisation of the lending policy thereby lessening the risk of a spillover effect from the financial sector to the real economy.

The Act on State-Funded Capital Injections builds on the political agreement on a credit package which the Government concluded with Socialdemokraterne, Dansk Folkeparti, Socialistisk Folkeparti, Radikale Venstre og Liberal Alliance on January 18 2009, and according to which the banks and the mortgage institutions are offered capital injections in the form of hybrid Tier 1 capital.

Danish credit institutions will in the years to come face a rising pressure on their solvency and due to the financial crisis the credit institutions will have problems raising further capital on the international markets in order to remedy this. Without access to capital the credit institutions can only withstand the risk of greater losses by trimming their balances through a tightening of the lending policy for companies and households. This implies a risk of a credit crunch which will have negative effects on the real economy.

The Act on State-Funded Capital Injections into Credit Institutions therefore etablishes an arrangement where all credit institutions can apply to the State for a capital injection in the form of hybrid Tier 1 capital. All banks, mortgage credit institutions, and Danish Ship Finance A/S will be included in this arrangement.

The purpose of the arrangement is to provide solvent credit institutions with the possibility of securing an adequate capital basis, thereby lessening the risk that sound companies and households will not be able to obtain financing through credit institutions. The arrangement stipulates that credit institutions that receive capital injections shall not tighten their lending policy more than is necessary under normal economic conditions while taking into account that the credit institutions in question must be able to conduct sound and responsible business.