Contents

Assessment of financial stability

ANALYSIS OF FINANCIAL STABILITY

The Financial Sector
The significance of financial institutions to financial stability
Nordic groups and Danish banking institutions
Mortgage-credit institutes
Pension companies

The Corporate Sector and the Households
The significance of the corporate sector and the households to financial stability
Corporate sector
Households

Financial Markets
International financial markets and financial stability
Equity and bond markets

ISSUES RELATED TO FINANCIAL STABILITY

Danmarks Nationalbank's Policy for Oversight of the Danish Financial Infrastructure
The stability of the financial systems requires secure, fast and efficient settlement of payments, securities trades, etc. To support this objective, Danmarks Nationalbank oversees that the financial infrastructure is secure and efficient. The framework for Danmarks Nationalbank's oversight of the financial infrastructure is laid down in an overall policy. This policy has been adjusted and extended to reflect the 2006 amendment of the Securities Trading Act, whereby Danmarks Nationalbank was empowered to oversee payment systems.

Effects of New Accounting and Capital-Adequacy Rules
New accounting and capital-adequacy rules will entail new calculation and management methods, and thereby new game rules for the banking institutions. Danmarks Nationalbank has calculated some of the effects of the new rule sets and how the rules will interact, including in a recession. The rules in themselves entail lower buffers in the banking institutions. The actual effects will depend on how the board and management of the individual bank choose to act. The board and management of a banking institution are responsible for ensuring that the banking institution has sufficient capital to meet the risks it faces.

Macro Stress Testing of Danish Households
Danmarks Nationalbank has developed a method to simulate the effect of higher unemployment and interest-rate increases on the finances of Danish households.The analysis shows that even in the event of strong increases in unemployment in combination with interest-rate increases the household sector will not entail losses for the banking sector that might jeopardise financial stability.

Macro Stress Testing of the Financial System
Danmarks Nationalbank is developing models for macro stress testing of the financial system. This chapter presents an overall model architecture and discusses the methodology and choice of population, as well as the sectoral and geographical demarcation, and some provisional model specifications.

Danmarks Nationalbank's Failure-Rate Model, KIM
Danmarks Nationalbank's failure-rate model, KIM, has been re-estimated so that the calculated estimated failure rates take cyclical developments into account. This chapter describes the model and the new variables.

Framework conditions for the Financial System

Glossary of financial terms