The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site.

All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.
Banking

Basle III: Denmark hits a covered wall

Basle III has been agreed and rubber-stamped in a remarkably short time. It might make the banking system more robust, but it has also ridden roughshod over some markets with near flawless reputations. One of them is Denmark, whose covered bond market is under threat. Hamish Risk reports

ATTEND A TYPICAL Copenhagen dinner party and conversation will invariably turn to the Danish covered bond market. It might seem a little offbeat, unless of course, you’re in the company of mortgage-bond bankers. In Denmark, though, this is a way of life. For the Danish covered bond market is the place where Danish homeowners meet to buy and sell their mortgage obligations. It is in effect the “people’s bond market”, created by and for the borrower, and it has been that way for more than 200 years. It now makes up 80% of Denmark’s fixed-income market. But now these traditional ways are under threat from the wave of regulation that naturally follows any financial crisis. The Basle Committee on Banking Supervision, in setting new capital requirements for bank liquidity buffers under Basle III, has placed limits on the amount of covered bonds banks can hold on their balance sheets as part of the liquidity coverage ratio (LCR). Moreover, they also stipulate that institutions should use government bonds to populate the liquidity buffer.

That’s a problem for Danish banks for two reasons. First because of their reliance on covered bonds as liquidity instruments, to the extent that they make up more than half of the investor base; secondly, because there isn’t a large enough stock of Danish government debt to replace the liquidity shortfall under the new rules.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree