Banks are facing hard times

Authors Danmarks Nationalbank
Subject Press releases from Danmarks Nationalbank
Type Press Releases  
Year 2020
Published 27 May 2020

27 May 2020

The impairments reported by the large banks in the first quarter were at the highest level since the financial crisis, and the economic outlook is characterised by great uncertainty. Banks' capital and liquidity levels make them more resilient now than they were before the financial crisis.

"Banks can withstand a sharp, temporary economic slowdown," says Assistant Governor Karsten Biltoft.

In scenarios where the economic downturn is followed by a prolonged recession, some of the country's large systemic banks risk falling short of their capital buffer requirements, a new stress test from Danmarks Nationalbank shows.

The stress test also shows that some medium-sized banks will fall short of their minimum capital requirements during a prolonged recession.

"It would not be a problem for overall financial stability if small or medium-sized banks have to be resolved as a result of the crisis," says Assistant Governor Karsten Biltoft.

For most banks, the MREL (Minimum Requirement for Own Funds and Eligible Liabilities) is the requirement they are closest to breaching. Banks should therefore ensure sufficient distance to this requirement.

In Danmarks Nationalbank's opinion, it is important to maintain the regulatory framework that has resulted in the banks being well prepared for the current crisis. Banks can only ensure continued lending to creditworthy customers as long as their own soundness cannot be called into question.

Enquiries can be directed to Press Officer Teis Hald Jensen at tel. +45 3363 6066.