Financial Stability

2008 and the first half of 2009 have been dominated by the international financial crisis. After a number of years with high profits, Danish banks have had to make large write-downs on loans, and several banks had negative earnings in 2008. Looking ahead, the banks are faced with considerable challenges in terms of restoring confidence and making the necessary adjustments. The global economy is set to slow down further and credit risk is rising, so substantial write-downs can also be expected in the coming quarters. Stress tests of the largest 14 banks show that if the opportunities for capital injections under Bank Rescue Package II are utilised, these banks will be relatively robust. Danmarks Nationalbank finds it positive that most large and medium-sized Danish banks have indicated that they will apply for government capital injections. Due to the economic uncertainty, the banks should carefully consider the option of being able to convert such capital injections into share capital. In an uncertain world it is an advantage for the banks to have extra buffers against any future losses.

The international financial crisis has affected the Danish banks. Several of them are faced with the challenge of reducing their balance sheets after a number of years of extremely strong lending growth. Under the current market conditions, negative financial results may on its own critically influence the banks' ability to obtain financing. This applies especially to banks with relatively large deposit deficits. So far, the government guarantee for the banks' unsecured claims has facilitated the banks' access to liquidity. Stress tests nevertheless show that the banks may encounter problems if the financial turmoil markedly affects the real economy. Against this background, the assessment is that, like many other countries, Denmark must implement a scheme for temporary capital injection to sound, well-managed Danish bankinginstitutions on terms that are as close to market terms as possible.

The international financial markets have been characterised by turmoil since the summer of 2007. This is reflected in Danish banks' financial statements for 2007. Earnings rose in the 1st half of the year, but the 2nd half marked a turning point for many banks after a prolonged period of earnings growth. Looking ahead, the banking sector will continue to be affected by the financial turmoil and the less favourable outlook for the Danish economy. Risks to financial stability have become more pronounced recently. The banks have become more exposed in the light of their growing lending portfolios and the reduction of their capital buffers in recent years. The Danish financial sector is deemed to be sufficiently resilient to withstand major economic shocks.

The report begins with Danmarks Nationalbanks assessment of the financial stability in Denmark. This is followed by the analysis of financial stability, with emphasis on the development in the financial sector. Finally the report consists of topical issues of relevance to financial stability. This year it contains: Danmarks Nationalbank's policy for oversight of the Danish financial infrastructure, effects of new accounting and capital-adequacy rules, macro stress testing of Danish households, macro stress testing of the financial system and Danmarks Nationalbank's failure-rate model, KIM.

The annual report Financial Stability assesses financial stability in Denmark, with emphasis on financial institutions, markets and payment systems. The report consists of two parts. The first part starts with an analysis of the development in the financial sector, with emphasis on the banking institutions. This is followed by a chapter on the development in the corporate sector and the households. Next the developments in the financial markets are reviewed and finally follow a chapter about the framework for Financial Stability. The second part of the report consists of topical issues of relevance to Financial Stability. This year it contains tree issues: Advanced approaches to calculation of capital requirements under Basel II, Banks' liquidity and finally protection of settlement in Danish payment systems.

The annual report Financial Stability assesses financial stability in Denmark, with emphasis on financial institutions, markets and payment systems. The report includes analyses of Danish banks, corporates and households. Topical issues of relevance to financial stability are also discussed

The two-part report first analyses the development in financial stability, with emphasis on the banking institutions. The second part of the report considers three current topics: branches of foreign credit institutions, systemic risks in the Danish market for uncollateralised overnight deposits, and market-based risk measures for banks

The report is in two parts. The first part starts with an analysis of the development in the financial sector, with emphasis on the banking institutions. This is followed by a chapter on the development in the corporate sector and the households, and finally the developments in the financial markets are reviewed.

Danmarks Nationalbank publishes an annual financial-stability report for Denmark. The purpose of analysing financial stability is to assess whether the financial sector is sufficiently robust to withstand problems in this sector impeding the functioning of the financial markets as efficient providers of capital for companies and households.