SENIOR CREDITORS are facing more losses in the Danish banking sector after another of the country’s small lenders was taken into state control, highlighting Denmark’s push to make bondholders share the cost of bank failures with taxpayers.
Fjordbank Mors was taken over by Finansiel Stabilitet, a state company responsible for managing failed banks, on Sunday, marking the second bankruptcy since Denmark introduced rules last year exposing investors to losses on senior debt.
Denmark has moved quicker than other countries to reduce government protection for bank deposits and unsecured senior debt in an attempt to share the burden of bank failures with private investors and discourage lenders from taking excessive risks.
The new rules have made Denmark a case study for banks and regulators across Europe as debate rages over whether creditors should be forced to take a “haircut” when financial institutions collapse.
Analysts said that senior creditors of Fjordbank Mors faced a loss of about 26 per cent on their unsecured loans to the bank, which had total liabilities of 11.4 billion kroner. About 450 of the bank’s 73,000 customers face a similar loss on deposits above the €100,000 threshold guaranteed by Danish deposit insurance rules.
Shares in Danske Bank, Denmark’s largest lender, fell more than 5 per cent on Monday and are down by a third in the past six months. – Copyright The Financial Times Limited 2011
