Denmark seeks rollback of some EU financial regulations

Business minister Brian Mikkelsen says framework hits all banks indiscriminately

Before 2008, Denmark had more than 140 lenders. Fewer than 80 survived, following the property market crash. Photograph: iStock

Before 2008, Denmark had more than 140 lenders. Fewer than 80 survived, following the property market crash. Photograph: iStock

 

Denmark wants the European Union to roll back some financial regulations, arguing the existing framework hits big and small banks indiscriminately.

The business minister, Brian Mikkelsen, has ordered an investigation into how other EU countries implement rules to see whether there’s any leeway to take a more relaxed approach within the current framework. He also wants a broader discussion “at the European level” to explore whether any existing rules can be reversed, he said in an interview in Copenhagen.

Mr Mikkelsen, who joined the centre-right government two months ago, last ran the business ministry when Denmark in 2011 became the first EU nation to force losses on senior bank creditors. The country’s bail-in package became a model for Europe as the region worked toward the bank recovery and resolution directive designed to shield taxpayers from losses.

A lot of financial regulation, such as Denmark’s bail-in package, was put together quickly and its sudden implementation is something 51-year-old Mr Mikkelsen says he regrets. His goal now is deregulation, which he says is needed to support economic growth.

Denmark is likely to get a sympathetic ear in Europe. The EU’s financial services commissioner Valdis Dombrovskis has already signalled he’s in favour of simplifying the regulatory environment for smaller banks.

‘Pamper’ treatment

But Mr Mikkelsen is even more ambitious. He says he wants to “pamper Danish businesses. That also goes for the financial sector. And I want to investigate whether we can cut demands on Danish financial institutions.”

Denmark has a patchy history when it comes to its experiences since the financial crisis. Before 2008, the country had more than 140 lenders. Fewer than 80 survived, following a property market crash and an agricultural crisis across rural Denmark, with many farmers unable to repay their loans.

The government passed a series of packages designed to support the banks through the turmoil. In 2010, lawmakers signed a Bill that allowed bail-ins. Though the package itself got little attention when it was made into law, it shocked markets when it was tested in February 2011, as Amagerbanken became the first EU lender to renege on obligations to senior creditors.

The fallout was severe. Most Danish lenders were shut out of wholesale funding markets. Even Danske Bank, the country’s biggest lender, saw investor confidence sink, with credit default swaps surging to about 70 times their level in 2006.

Since then, Denmark’s biggest banks have built their capital positions, turning investor sentiment around, and Danske is now among Europe’s best-performing banks. Its default swaps again trade at about pre-crisis levels and its shares last year trounced Bloomberg’s benchmark index for European financial stocks.

Mr Mikkelsen says he’s aware that scaling back regulation is unpopular with the electorate. “But if you only have defenders in your football team, you’ll never score a goal,” he said. – (Bloomberg)