Report of the Board of Governors 2009

International background to the Danish economy

In the 1st half of 2009, the global economy was still in a recession, and the financial crisis had evolved into an extensive real economic crisis. During the spring, economic indicators gradually became less negative, and in most industrialised countries economic growth turned positive in the 2nd half of 2009 after 5-6 quarters of falling output. World trade and industrial production began to rise, but from a low level. In the emerging market economies output declined less, and the recovery began earlier, in the 1st half of the year. The international economic recovery was to a large extent driven by temporary factors such as inventory adjustments and considerable easing of economic policy. Diminishing uncertainty in the financial markets also contributed.

It remains to be seen whether the international recovery will be self-sustained. The most recent estimates from international organisations point to 3.9 per cent growth in the global economy in 2010 and 4.3 per cent in 2011. The growth outlook is slightly weaker for Europe than for other major economies and is strongest in the emerging market economies.

Inflation in the industrialised world declined in the 1st half of the year, turning negative in the USA and the euro area, and then rose in the 2nd half of the year. This is mainly attributable to the strong fluctuations in energy prices throughout 2008. Considerable spare capacity was reflected in modest increases in consumer prices excluding energy and food. Commodity prices rose strongly over the year, reflecting increasing demand, especially from the Asian emerging market economies, the depreciation of the dollar and better conditions in the financial markets. The price of a barrel of Brent crude oil doubled over the year, to just under 80 dollars at year-end.

The financial markets have improved since the spring of 2009. Credit spreads have narrowed after having widened substantially from the autumn of 2008 to the spring of 2009. Equity prices continued to fall at the beginning of the year, but then rose steadily. US and euro area stock indices rose by around 20 per cent from the beginning to the end of the year and by around 60 per cent from the trough in the spring until year-end. Nevertheless, they remain well below former peaks. Long-term bond yields in the USA and Europe increased in the 1st half of the year as the growth outlook and financial conditions improved, but then fell back and remained more or less unchanged in the 2nd half of the year, albeit with some fluctuations. At end-2009 the yields on the benchmark US and German 10-year government bonds were 3.8 per cent and 3.4 per cent, respectively, compared with 2.4 per cent and 3.0 per cent, respectively, at the beginning of the year. Ample liquidity generated extensive demand for government bonds, which helped to curb yields despite a large and increasing issuance volume.

The euro mainly tended to strengthen vis-à-vis the US dollar and the Japanese yen during the year, whereas it weakened slightly against the Swedish krona and the pound sterling, having fluctuated considerably. The US dollar weakened vis-à-vis most other currencies from the spring until early December, thereby reversing the significant strengthening seen in the autumn of 2008. The weakening should be viewed against the background of low US interest rates. The USA is regarded as a "safe haven". In the autumn of 2008, diminishing risk appetite worldwide had pushed up demand for US assets, and the dollar had strengthened. As investors regained their risk appetite from the spring of 2009, capital increasingly flowed out of the USA, and the dollar weakened. Improved growth prospects caused the dollar to strengthen again from the beginning of December, particularly vis-à-vis the euro. This trend inten sified after the turn of the year, when focus on the fiscal imbalances in Greece led to a pronounced weakening of the euro.

The nominal price of gold was record-high in early December, exceeding 1,200 dollars per troy ounce, and ended the year at around 1,100 dollars per ounce, up from just under 900 dollars at the beginning of the year. The increase is attributable to factors such as large purchases of gold by central banks in several emerging market econ omies and the weakening of the dollar.

Monetary policy remained strongly expansionary in most countries in 2009. In the USA, monetary-policy interest rates were kept at a record-low level of 0-0.25 per cent throughout the year, while in the euro area and the UK they were gradually reduced during the spring, also to record-low levels of 1.0 per cent and 0.5 per cent, respectively. In the autumn, Australia, Israel and Norway, responding to rising activity, were the first countries to raise their monetary-policy interest rates since the onset of the global economic crisis. Not only were monetary-policy interest rates historically low, many central banks also announced quantitative easing of monetary policy by supplying the monetary-policy counterparties with ample liquidity and by purchasing securities. As the financial markets normalised, demand for some of these new measures declined, so that they were to a certain extent automatically phased out. Some will, however, remain in place in 2010.

The large-scale expansion of fiscal policy to limit the negative impacts of the financial crisis on the economy led to rapidly rising government deficits and debt in most industrialised countries. According to the European Commission, nearly all EU member states in 2009 exceeded the limit of 3 per cent of GDP set in the Stability and Growth Pact, and for the EU overall the government deficit was 6.9 per cent of GDP. Almost half of the EU member states exceeded the limit of 60 per cent of GDP for government debt

The Danish Economy

In the 1st half of 2009, the Danish economy experienced an extra ordinarily strong fall in GDP, but the downturn had already started in 2008. Although growth turned positive again from the 3rd quarter of 2009, GDP was 6.7 per cent lower at year-end than at the peak in the 4th quarter of 2007. The slowdown began as a response to a very high capacity pressure in the preceding years, and from the 2nd half of 2008 it was amplified by the financial crisis and the international recession.

Registered unemployment rose throughout 2009, to 4.3 per cent of the labour force at year-end. According to the Labour Force Survey, the EU-harmonised unemployment, which also includes jobseekers not registered as unemployed, was 6.8 per cent in the 4th quarter. As the labour market slowed down, companies ceased to report on recruitment problems.

The rising unemployment and the worsened economic outlook damp ened wage inflation. For the private sector overall, the annual rate of wage increase was 2.3 per cent in the 4th quarter of 2009, down from 4.2 per cent in the 4th quarter of 2008. Nevertheless, wage inflation remained higher than abroad throughout the year.

Measured by the increase in the Harmonised Index of Consumer Prices, HICP, inflation was 1.2 per cent year-on-year in December compared with 2.4 per cent one year earlier. Domestic market-determined infla tion, IMI, was relatively high throughout the year, partly because the lower input prices were not fully passed through from manufacturers to end-customers. The high IMI also reflects a considerable increase in unit labour costs due to weak productivity development.

Domestic demand decreased by 6.2 per cent in 2009. Private con sumption fell by 4.6 per cent on account of factors such as the decline in household wealth, including housing wealth, the deteriorated employ ment situation and the uncertainty linked to the financial crisis. More over, the squeezed housing market meant that residential investments fell substantially for the second year running. Business investment also declined sharply in 2009 due to the significantly weaker sales opportunities and the resulting spare capacity. Business enterprises also reduced their inventories considerably.

Exports declined by 10.7 per cent in 2009 as a result of the unpre cedented slowdown in world trade. However, weak domestic demand caused imports to fall more than exports so that net exports made a positive contribution to GDP growth. At year-end the nominal effective exchange rate of the krone was slightly lower than at the beginning of the year. However, competitiveness deteriorated as wages rose more than they did abroad, and productivity development was weak.

Public finances deteriorated strongly in 2009, and the government budget balance tipped, from a surplus of 3.4 per cent of GDP in 2008 to a deficit of 3.0 per cent in 2009. This shift was attributable to the automatic stabilisers, i.e. lower tax revenue and higher expenditure for transfer payments, as well as easing of fiscal policy in response to the crisis. Several large public-sector construction projects were launched during the year, and public consumption and investment increased by 2.5 per cent in 2009.

Monetary and foreign-exchange policy

Danish monetary and foreign-exchange policy is aimed at keeping the krone stable vis-à-vis the euro. Due to the euro area's low-inflation policy, this creates a basis for low and stable inflation in Denmark. The formal framework for Denmark's fixed-exchange-rate policy is the European Exchange Rate Mechanism, ERM II. Denmark participates with a central rate of kr. 7.46038 per euro and a fluctuation band of +/- 2.25 per cent in relation to the central rate, cf. Chart 1. The fixed-exchange-rate policy means that the monetary-policy interest rates are used solely to keep the krone close to its central rate.

Krone vis-à-vis euro	Chart 1
Note: Reverse scale. Source: Danmarks Nationalbank.

In 2009, the krone was stable vis-à-vis the euro at a level close to its central rate in ERM II. During the year, Danmarks Nationalbank purchased foreign exchange for kroner in the market. For the year overall, Danmarks Nationalbank made net intervention purchases of foreign exchange for approximately kr. 154 billion, cf. Table 2. In the same period, the foreign-exchange reserve increased by kr. 183 billion to kr. 395 billion at the close of 2009. The central government's net foreign borrowing totalled kr. 7 billion. The foreign loans are raised in order to maintain an adequate foreign-exchange reserve.

In 2009, Danmarks Nationalbank lowered its monetary-policy interest rates in several increments, reducing the lending rate by a total of 2.55 percentage points. At the beginning of the year, the lending rate and the rate of interest on certificates of deposit were both 3.75 per cent, while the discount rate and the current-account rate were 3.50 per cent. At year-end the lending rate was 1.20 per cent, the rate of interest on certificates of deposit 0.95 per cent, the current-account rate 0.85 per cent and the discount rate 1.00 per cent. The spread between Danmarks Nationalbank's lending rate and the European Central Bank's (ECB's) interest rate on its main refinancing operations, i.e. the monetary-policy interest-rate spread, was somewhat elevated at the beginning of 2009, having widened in the autumn of 2008 when the krone was under pressure. Since then, the spread has narrowed, decreasing from 1.25 per cent to 0.20 per cent during 2009.

In response to the ECB's lowering of its main refinancing rate, Danmarks Nationalbank cut its monetary-policy interest rates on 16 January, 6 March, 3 April and 11 May, by 0.75, 0.75, 0.25 and 0.35 percentage point, respectively. Danmarks Nationalbank lowered its interest rates by more than the ECB did due to purchases of foreign exchange in the market.

Subsequently, Danmarks Nationalbank unilaterally lowered its interest rates on several occasions, motivated by continued purchases of foreign exchange in the market. Effective 8 June, Danmarks Nationalbank's lending rate was lowered by 0.10 percentage point. At the same time, the rate of interest on certificates of deposit was reduced by 0.20 per centage point, and the discount and current-account rates were cut by 0.20 percentage point. An interest-rate margin of 0.10 percentage point was thus introduced between the lending rate and the rate of interest on certificates of deposit. The aim was to give banks and mortgage-credit institutes an incentive to even out mutual liquidity differences via the money market rather than using Danmarks Nationalbank's facilities. On both 14 and 28 August, Danmarks Nationalbank lowered its monetary-policy interest rates by 0.10 percentage point. On 25 Septem ber, the lending rate and the rate of interest on certificates of deposit were, once again, lowered by 0.10 percentage point, while the discount rate and the current-account rate remained unchanged. Effective 29 September, the rate of interest on certificates of deposit was reduced by 0.15 percentage point and the current-account rate by 0.10 percentage point. The lending and discount rates remained unchanged. This meant that the interest-rate margin between the lending rate and the rate of interest on certificates of deposit was widened to 0.25 percentage point, and a margin was introduced between the discount and current-account rates. Effective 11 December, the lending rate, the rate of interest on certificates of deposit and the current-account rate were lowered by 0.05 percentage point, while the discount rate remained unchanged.

In the period from the introduction of the interest-rate margin be tween the lending rate and the rate of interest on certificates of deposit to end-2009, the banks and mortgage-credit institutes reduced their borrowing by kr. 66 billion, while their current-account deposits and holdings of certificates of deposit were reduced by kr. 59 billion overall, since the net position of these institutions increased by kr. 8 billion during this period. The effect of the interest-rate margin is difficult to quantify, but since its introduction the institutions have overall reduced their gross utilisation of Danmarks Nationalbank's facilities.

The supplement to the lending rate charged for the credit facility against loan bills and the credit facility on the basis of capital adequacy was reduced from 2 to 1 per cent as of 13 March 2009, reflecting the falling level of interest rates.

Money market
Conditions in the money market gradually improved during 2009, after the global money markets had more or less frozen in the autumn of 2008. The interest-rate spread between uncollateralised and collat eralised loans narrowed substantially, but remained wider in Denmark than in the euro area, and the spread to the euro area for uncollat eralised reference interest rates in the money market (Cibor and Euribor) remained relatively wide.

Monetary-policy interest-rate spread and 3-month interest-rate spreads between Denmark and the euro area	Chart 2
Note: The monetary-policy interest rate spread is the difference between Danmarks Nationalbank's lending rate and the ECB's marginal rate in its main refinancing operations. The interest-rate spread for uncollateralised lending is the spread between the 3-month Cibor and Euribor. The interest-rate spread for collateralised interest rates is based on a 3-month interest-rate swap at the overnight interest rate. Source: Danmarks Nationalbank.

The spread between money-market interest rates in Denmark and the euro area was generally somewhat wider than the monetary-policy spread, cf. Chart 2. This should be viewed in the light of very low money-market interest rates in the euro area following the ECB's decision in October 2008 to introduce full allotment at a fixed rate of interest in its main refinancing operations. The credit institutions in the euro area to a large extent placed liquidity in deposit accounts at the ECB at a lower rate of interest than the main refinancing rate. In June 2009, the ECB introduced 12-month fixed-rate refinancing operations with full allot ment, after which the credit institutions' loans from and deposits with the ECB increased. As a result, short-term money-market interest rates in the euro area were considerably below the ECB's main refinancing rate, while money-market interest rates in Denmark were closer to Danmarks Nationalbank's monetary-policy lending rate.

At the start of the year, the banks had raised loans in foreign currency totalling kr. 108 billion from Danmarks Nationalbank under the swap lines agreed with the Federal Reserve and the ECB. As the foreign-exchange markets continued to normalise, the banks were able to obtain the necessary loans in foreign currency without the assistance of Danmarks Nationalbank. From 25 November 2009 the banks no longer had any loans in foreign currency from Danmarks Nationalbank under the swap lines.

Bank interest rates and bond yields
Yields on Danish mortgage-credit bonds fell in 2009, especially for the short maturities. This reflected lower monetary-policy interest rates.

The banks' deposit and lending rates also fell due to the lower monetary-policy interest rates. From end-2008 until December 2009, the banks' average lending rates to households and the corporate sector fell by 2.7 and 2.4 percentage points, respectively, while deposit rates fell by 2.2 and 3.2 percentage points. The interest-rate margin was thus reduced by 0.5 percentage point for households, while it increased by 0.8 percentage point for the corporate sector.

The 10-year government bond yield increased from approximately 3.3 per cent at the beginning of 2009 to approximately 3.6 per cent at year-end. The yield spread to equivalent German government bonds nar rowed from around 0.4 percentage point to 0.3 percentage point. Similar developments were seen in the yield spreads of other European countries vis-à-vis Germany.

The Domestic Financial System

Financial stability
The recession in the economy affected the banks, whose financial statements taken as one reflected large write-downs on loans in the first three quarters of 2009. Market-value gains had a positive impact on the banks' earnings, however, reflecting favourable developments in the financial markets and higher interest-rate margins. The mortgage-credit institutes' write-downs on loans also increased in 2009, but remained low in a long-term perspective.

The financial crisis has put the liquidity and capital structures of Danish banks under strong pressure. In 2009, 43 banks and mortgage-credit institutes strengthened their capital base by approximately kr. 46 billion via government capital injections under the Credit Package (Bank Rescue Package II), while others have raised capital in the markets.

In response to the financial crisis, the authorities and international collaborative organisations have initiated work on regulatory measures to prevent a repetition of the financial crisis. This work is expected to significantly change the framework conditions for operating as a credit institution.

Roskilde Bank
On 10 August 2009, Roskilde Bank was transferred from Danmarks Nationalbank and the Danish Contingency Association to the Financial Stability Company. In addition to ownership of Roskilde Bank, the Financial Stability Company, as the creditor, also took over a subordin ated loan from Danmarks Nationalbank as well as a special credit facility that had been made available to Roskilde Bank.

Extension of political agreement on financial stability in the pension sector
At the end of October 2009, the Ministry of Economic and Business Affairs and the Danish Insurance Association agreed to extend the agree ment on financial stability in the pension sector until 31 October 2010. The agreement was originally concluded on 31 October 2008.

Stress testing in cooperation with the largest Danish banks
In the autumn of 2009, Danmarks Nationalbank performed a stress test in cooperation with the Danish Financial Supervisory Authority and the six largest Danish banks. The participant banks calculated the impact of various stress scenarios using their own models and based on their own portfolios. The results were presented in Stress Tests, 2nd Half 2009 along with Danmarks Nationalbank's own stress tests of the resilience of the 14 largest Danish banks to further negative shocks to the economy.

Both types of stress test showed that in the most probable scenario the banks were sufficiently capitalised. The results of the stress tests did not prompt Danmarks Nationalbank to propose new initiatives. However, it was emphasised that that in the future both new regulation and markets will require the banks to hold more capital of a better quality than they did prior to the onset of the crisis (i.e. more share capital relative to subordinated debt). Tighter regulation is not expected to enter into force until the end of 2012. However, banks and other market participants are likely to start preparing for more stringent requirements already at this stage.

Liquidity monitoring
The financial crisis in recent years has highlighted the importance of managing liquidity risk in the financial sector. In cooperation with the Danish Financial Supervisory Authority, Danmarks Nationalbank has taken steps to establish a new, detailed system for monitoring liquidity in the Danish banking sector. The system is to increase the authorities' insight into the liquidity risks incurred by the sector.

New European supervisory architecture

On 23 September 2009, the European Commission tabled a proposal for a set of legislative measures to enhance financial supervision in Europe. The new supervisory architecture aims to improve both macroprudential and microprudential supervision by establishing two new institutions, the European Systemic Risk Board (ESRB) and the European System of Financial Supervisors (ESFS). The ESRB is to monitor and assess risks to the financial system as such (macroprudential supervision), while the ESFS is to undertake supervision of credit institutions (microprudential supervision).¹ The proposal was considered by the European Council in December 2009 and is expected to be adopted by the European Parliament in mid-2010 so that the new institutions can be established from 1 January 2011.

International Monetary Cooperation

Enlargement of the euro area and ratification of the Lisbon Treaty
On 1 January 2009, Slovakia joined the euro area. The transition was smooth. The remaining ERM II participants are Denmark, Estonia, Latvia and Lithuania. The Lisbon Treaty came into force on 1 December 2009 following a prolonged ratification process. The Lisbon Treaty entails only minor changes to the EU's economic and financial cooperation.

The International Monetary Fund
Work in the International Monetary Fund, IMF, has reflected the prominent role of the IMF in international economic policy cooperation during the economic crisis, including strong growth in the IMF's new loan commitments. To ensure that the IMF has sufficient lending resources and to boost confidence, the international community, driven by the G-20 sum mit in London in April 2009, agreed to triple the IMF's general lending capacity. The capacity to lend on concessional terms to low-income coun tries will be doubled, and global liquidity has been increased by allotting special drawing rights (SDRs) on the IMF equivalent to 250 billion dollars.

As a member of the IMF, Denmark has contributed to these funds, including as part of a coordinated EU contribution. Because Danmarks Nationalbank is responsible for managing Denmark's financial accounts with the IMF, these initiatives impact on Danmarks Nationalbank's balance sheet and the foreign-exchange reserve.

The increase of the IMF's lending capacity is initially achieved by a number of voluntary bilateral lending agreements between the IMF and member countries. In November 2009, Danmarks Nationalbank concluded a bilateral loan agreement for 1.95 billion euro with the IMF. In the longer term, the loan agreements are to be transferred to an expansion of the New Arrangements to Borrow (NAB), established in 1997. Denmark's share of the new NAB will be a good 5 billion dollars. Backed by a government guarantee, Danmarks Nationalbank has also made commitments for a further 200 million SDR for IMF loans to low-income countries. In addition, Danmarks Nationalbank has received 1.4 billion SDRs through the SDR system. This amount is included in the foreign-exchange reserve.

The bilateral loan and the increased SDR allocations generally increase the IMF's drawing rights on Danmarks Nationalbank. If the IMF draws on these facilities, this will impact on the composition of the foreign-exchange reserve, as hard currency is exchanged for claims on the IMF. The size of Denmark's foreign-exchange reserve remains unchanged.²

Banknotes and Coins

In 2009, the value of banknotes and coins in circulation fell to kr. 60.1 billion from kr. 60.6 billion in 2008. The value of banknotes in circulation fell to kr. 54.5 billion in 2009 from kr. 55.1 billion in 2008, while the value of coins in circulation increased to kr. 5.6 billion in 2009 from kr. 5.5 billion in 2008.

The value of banknotes and coins in circulation is stated exclusive of commemorative coins, Faroese banknotes and certain old banknotes and therefore deviates from the figure stated on Danmarks Nationalbank's balance sheet.

356 counterfeit banknotes were removed from circulation in 2009. This is a decline compared with 2008, when 517 counterfeit banknotes were found. In an international context, counterfeiting of Danish banknotes remains limited.

New banknote series
The first banknote in the new Danish series – the 50-krone banknote – was put into production in early May 2009 and issued on 11 August. Design and production of the new series will continue into 2010, when the 100-krone banknote will be introduced on 4 May and the 200-krone banknote in October. The remaining two banknotes, 500 and 1,000 kroner, will be issued in 2011.

The new banknote series was designed by the artist Karin Birgitte Lund. The motifs are bridges in Denmark as well prehistoric objects found near the bridges.

Faroe Islands and Greenland
As Denmark's central bank, Danmarks Nationalbank also supplies the Faroe Islands and Greenland with cash. Since 1951 the Faroe Islands have had their own banknotes with Faroese motifs, but with the same denominations as the Danish banknotes. In 2006, the Greenlandic and Danish governments adopted the Act on Banknotes in Greenland with a view to introducing separate Greenlandic banknotes. The Act entered into force on 1 June 2007. The artist Miki Jacobsen was appointed by the Government of Greenland to design the banknote series. In January 2010, the Danish Government informed Danmarks Nationalbank that the new Parliament of Greenland wishes to reconsider the issue of introducing separate Greenlandic banknotes. Consequently, Danmarks Nationalbank has suspended the project.

The Royal Danish Mint
Effective 1 October 2008, the 25-øre coin ceased to be legal tender, but it can be exchanged at Danmarks Nationalbank for three years from this date, i.e. until 1 October 2011. In early 2008, 525 million bronze 25-øre coins were in circulation, but since then 160 million coins, corresponding to 30 per cent of the outstanding volume, have been returned. In other words, 365 million coins are still held by the general public. Only a small proportion of these coins is expected to be returned by the deadline in 2011.

During the year, coins in circulation increased by only kr. 61 million, i.e. just over 1 per cent. Stocks of coins were ample in 2009 since other values were also returned in connection with the removal of the 25-øre coin from circulation, and the need to produce coins for circulation was therefore limited.

Issuance of thematic coins continued. The third and final coin in the series to mark the International Polar Year was issued at the beginning of the year. Two ship coins were issued; the first one, designed by the artist Karin Lorentzen, came in May and depicted Lightship XVII, while the other coin, issued in November and designed by the Faroese artist Hans Pauli Olsen, had a Faroese boat as its motif. This series will continue in 2010.

In March 2010 a special coin will be issued to commemorate the 70th birthday of Her Majesty Queen Margrethe II in April. The coin will be issued in four versions: an ordinary 20-krone circulation coin, a proof version with a nominal value of 20 kroner, a silver coin with a nominal value of 500 kroner and finally a gold collector's coin with a nominal value of 1,000 kroner.

Payment Systems

Danmarks Nationalbank's temporary measures
During the financial crisis, Danmarks Nationalbank has temporarily expanded the range of securities eligible as collateral for credit facilities from Danmarks Nationalbank. In 2009, the collateral base was expanded further to include quoted and unquoted bank bonds covered by a government guarantee. In addition, the rules for loans against loan bills as collateral were amended so that these bills can now be used as collateral for all types of loans at Danmarks Nationalbank.

At the beginning of 2010, Danmarks Nationalbank also expanded the temporary collateral base to include bonds issued by Special Purpose Vehicles, SPV, that provide loans with individual government guarantees to Danish banks and mortgage-credit institutes.

Payment systems
Danmarks Nationalbank owns and operates the Kronos payment system for large, time-critical payments and acts as settlement bank for the Sumclearing, which is the Danish Bankers Association's system for settlement of retail payments, and for the securities settlement (VP settlement). In addition, Danmarks Nationalbank oversees the financial infrastructure in Denmark in order to promote safe and efficient settlement of payments and securities transactions.

Kronos
Settlement of payments in Kronos was smooth in 2009, and the participants' liquidity was ample to meet their day-to-day payment obligations. This is to a large extent attributable to their access to intra day credit at Danmarks Nationalbank against their large portfolios of eligible assets as collateral.

In 2009, the value of Kronos payments fell by 11 per cent, reflecting a decline in monetary-policy operations, i.e. transactions between Dan marks Nationalbank and the banks and mortgage-credit institutes that are settled via Kronos, and also in interbank payments.

The Sumclearing
The Sumclearing is the Danish system for settlement of retail payments. Danmarks Nationalbank has previously called for better settlement discipline among the Sumclearing participants. Settlement discipline continued to improve in 2009, leading to a fall in the number of post poned participants, i.e. banks that have not reserved sufficient liquidity for night-time settlement. The improvement follows the decision by the Danish Bankers Association (the system owner) to increase of the fee for postponement.

Securities settlement
On the whole, the VP settlement, the Danish system for settlement of securities transactions, also ran smoothly in 2009, although there was a tendency for daily settlement blocks to be postponed more frequently. The reason was that participants had difficulties in procuring euro liquidity for settlement block 33, in which kroner are exchanged for euro from night-time settlement. Danmarks Nationalbank has encour aged participants to analyse the consequences of rescheduling this settlement block for later in the day.

System failures
IT operations for several core systems in Denmark, including the Sum clearing and the VP settlement, are currently in the hands of a single service provider. In 2009, system failure experienced by this operator caused delays in the Sumclearing and VP settlement on several occasions.

SEPA Direct Debit
In November 2009, European banks introduced a new payment product in euro, SEPA Direct Debit. This product will enable payment collection services – such as direct debit – across national borders in Europe.

Danish banks also offer their customers this new product. Upon request, Danmarks Nationalbank has chosen to assist the banks in the settlement of SEPA Direct Debit. To this effect Danmarks Nationalbank, acting on behalf of the banks, participates directly in Euro Banking Association's clearing system for retail payments, STEP2. Other European central banks have taken on similar roles.

Infrastructure development in the securities area
In 2009, central banks and central securities depositories in Europe and market participants continued their work on TARGET2-Securities (T2S). The aim is to establish a trans-European securities settlement system in which cross-border transactions can be settled as efficiently as domestic transactions. Actual system development will begin in 2010. In January 2010, the ECB announced that the project will be delayed and will not be ready by the summer of 2013 as originally planned.

The Danish central securities depository, VP Securities A/S, has indi cated that it will participate in T2S in both kroner and euro. Danmarks Nationalbank has committed itself to making liquidity in kroner available for settlement in the system. In 2010 Danmarks Nationalbank will analyse the consequences of connecting to T2S for securities settlement in Denmark.

In 2009 it became possible to clear share transactions on NASDAQ OMX, Copenhagen via a central counterparty, i.e. a CCP. The Dutch com pany European Multilateral Clearing Facility N.V. is currently the only CCP on the stock exchange in Denmark. Danmarks Nationalbank has helped to analyse potential models for CCP cash settlement and has offered to act as settlement bank.

Statistics

Coherent quarterly national accounts broken down by sector
In 2009, Danmarks Nationalbank worked with Statistics Denmark to create coherence between the quarterly non-financial and financial national accounts. The result, which was published on 15 January 2010, provides a better basis for e.g. assessing interaction between Danish households' incomes, consumption and savings on the one hand and their borrowing on the other hand. Likewise, light is shed on the earnings, investments and financing of the corporate sector. Denmark is one of the first EU member states to publish fully consistent national accounts on a quarterly basis in which the financial side – sector by sector – has been aligned with the real economic side of the economy.

New statistics for investment associations
In 2009, Danmarks Nationalbank worked with the Danish Financial Supervisory Authority to develop a new reporting system for investment associations. Under the new system, Danmarks Nationalbank is the single point of contact for reporting by investment associations to the two institutions, and Danmarks Nationalbank then forwards data to the Danish Financial Supervisory Authority. This eliminates overlap. The establishment of the single reporting system entails administrative savings for the authorities and eases the reporting burden of the invest ment associations.

The new statistics will be published for the first time in May 2010, covering data for the 1st quarter.

New statistical provisions
In late 2009, Danmarks Nationalbank asked the Danish government to include a statistical provision in the Danmarks Nationalbank Act, citing a need for regulatory access to use information about individual institu tions when conducting monetary and foreign-exchange policies and monitoring financial stability in Denmark. This is not possible today, where collection of statistical information by Danmarks Nationalbank is based on authorisation from Statistics Denmark. The information may only be used for preparing statistics.

The Government has indicated that it will table a bill to amend the Danmarks Nationalbank Act in the 1st half of 2010.