Current financial conditions
Lending by credit institutions is at a high level and almost unchanged from the 3rd to the 4th quarter of 2013. Credit conditions have been eased slightly, and the institutions' risk appetite seems to have increased. Competition has intensified. This pattern is seen e.g. from the diminishing interest-rate margin, Danmarks Nationalbank's lending survey and a survey by the Danish Financial Supervisory Authority focusing on the development in selected business segments. Next autumn, the Danish Financial Supervisory Authority will conduct a targeted survey of the credit standards for selected new grants.
The banks have a lower need for market-based funding than before the financial crisis due to continued customer funding surpluses at end-2013. Considerable long-maturity issues were made towards the end of the year. Many of these were subordinated capital that can be used in connection with the banks' adjustment to coming capital requirements.
Overall, there are no indications of accumulation of vulnerabilities in the banks' exposures to other sectors and households.
Other topics of relevance to the Council
The Council discussed aspects of a supervisory diamond for mortgage banks based on the Danish Financial Supervisory Authority's preliminary deliberations on its content. The Council supported the concept. The work on establishing a supervisory diamond follows up on a recommendation from the Committee on the causes of the financial crisis (the Rangvid Committee).
The Council discussed the implications of deferred-amortisation loans. There are positive welfare effects from deferred-amortisation loans. They expand, for instance, the opportunities for smoothing consumption over a lifetime. In a financial stability perspective, amortisation of the "last-ranking" part of loans with a high loan-to-value ratio will contribute to lowering the credit institutions' credit risk and reducing any need to pledge top-up collateral. The Council decided to analyse further the systemic risks in relation to deferred-amortisation loans.
The Council made some preliminary observations regarding inter alia the capital- and liquidity-based possibilities for macroprudential measures in the new capital requirement rules (CRR/CRD IV) implemented in Danish law with the amendment to the Danish Financial Business Act of 18 March 2014. In order to provide guidance on the use of the possible measures, the European Systemic Risk Board, ESRB, has published a report on the macroprudential policy framework in the EU and a handbook containing operational advice.
The Council also discussed macroprudential aspects of a number of other regulatory initiatives, including the framework for a banking union in the EU, the European Commission's proposal for structural reform of the banking sector, the implementation of the Crisis Management Directive, the status of the European definition of Liquidity Coverage Ratio, LCR, and the Act on mortgage banks' refinancing risk.
Overall assessment of follow-up on recommendation
The Council has received an answer from the government regarding the Council's recommendation of 24 June 2013 on the phasing-in of capital requirements legislation in Denmark. The Council shares the government's view that the political agreement (Bank Package 6) and the passed act of 18 March 2014 generally comply with the recommendation. The Council noted that a decision on crisis management of SIFIs, including a crisis management buffer, awaits the implementation of common EU rules. Furthermore, the Council noted that the Danish framework for the countercyclical capital buffer will be phased in gradually from 2015 to 2019. The Council had recommended that the framework should be implemented in full from 2015. The Council found that if, for example, credit developments in the period up to 2019 would warrant a level of the countercyclical buffer that is higher than the one allowed under the gradually implemented framework, new legislation would be required. Appendix 1 contains an overview of the follow-up on the individual parts of the recommendation and any deviations.
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