Capital buffer must be ahead of the financial cycle

If you want to hit a moving target, you must aim ahead of the target, not at its current position. This principle applies just as well when playing dodgeball at school as when shooting down enemy missiles in wartime. It also applies when policymakers determine the banks' capital buffer level required to weather hard times. They must look at the direction in which the financial development is moving, rather than at its current state.

Working Paper: Ahead of the Cycle

The paper describes how to conduct macroprudential policy in an environment where economic indicators move in a cyclical fashion, policy works with a lag, and there are adjustment costs to changing policy. It shows that policy instruments such as the countercyclical capital buffer should be set not only based on the present state of the cycle, but also on where the cycle is heading.

Speech by Governor Lars Rohde at SUERF conference in New York

Speech by Governor Lars Rohde at SUERF conference in New York, 16 October 2019.

Betalingsservice Assessment

Danmarks Nationalbank has assessed Betalingsservice, which is owned and operated by Nets, against the standards for direct debit schemes established by the European Central Bank, ECB. Danmarks Nationalbank's overall assessment is that Nets has ensured that Betalingsservice extensively complies with the ECB requirements. At the same time, Danmarks Nationalbank has recommendations and remarks on how to strengthen Nets' management and operation of Betalingsservice. Inter alia, Danmarks Nationalbank recommends that Nets strengthen the compliance area and formalise its requirements for the critical suppliers' risk management. It is also remarked that the transparency of the fee structure will be enhanced if the firms clearly show their own fees to the consumers. Nets can be conducive to ensuring this. Danmarks Nationalbank oversees the payment and settlement systems in Denmark in order to promote safe and efficient settlement of payments, securities trades, etc. Betalingsservice is one of the solutions subject to this oversight.

Danmarks Nationalbank's comments on the Danish Economic Council's discussion paper, Autumn 2019

Speech by Governor Per Callesen at Green Climate Fund's 2019 Private Investment for Climate Conference, Republic of Korea

Speech by Governor Per Callesen at Green Climate Fund's 2019 Private Investment for Climate Conference, Republic of Korea, 8 October 2019.

Lower demand and increased competition

In Danmarks Nationalbank's lending survey for the 3rd quarter 2019, 5 of the 17 surveyed banks report that they have experienced lower loan demand from corporate customers compared to the previous quarter. In particular, the demand from new corporate customers has been lower, according to the banks. The banks report that lower demand applies to large as well as small and medium-sized corporate customers. At the same time, the banks report increased competition for these customers.

Working Paper: Modeling Persistent Interest Rates with Volatility-Induced Stationarity

We propose a new model for the term structure of interest rates, which embraces the extreme persistence observed in interest rate data. This is achieved by introducing so-called volatility-induced stationarity. We apply the model to U.S. Treasury bond yield data and show that volatility-induced stationarity improves estimation of term premia and forecasting of interest rates compared to existing models.

The market can see through media framing

Stock market investors react only on the objective facts and not the spin in media articles, a new working paper from Danmarks Nationalbank shows.

Working Paper: Seeing Through the Spin: The Effect of News Sentiment on Firms' Stock Market Performance

We show that Stock market investors react only on the objective facts and not the spin in media articles. We use natural language processing tools to compute the tone of 288 thousands articles written by Reuters between 2000 and 2018, and show that it predicts the short-term stock market performance of companies. However, by exploiting a combination of unsupervised machine learning and econometric techniques, we show that this effect is only due to the informational content of the article, and not the framing of that article. The market sees through media spin and can filter informational content from irrelevant tone.

Speech by Governor Lars Rohde at the anniversary conference on Banking & Supervision

Speech by Governor Lars Rohde at the anniversary conference on Banking & Supervision, 3 October 2019.

Foreign Exchange and Liquidity and Monthly Balance Sheet, September 2019

​In September 2019, the foreign-exchange reserve decreased by kr. 1.6 billion to kr. 445.0 billion.

More Danes carry the pension risk themselves

The Danes' total retirement savings amounted in the second quarter to kr. 3,661 billion as a consequence of large returns on stocks, bonds and interest rate derivatives. Movements in financial markets affect the pension assets more directly today than what has been the case previously.

International investment position sets new record

Denmark's international investment position, IIP, increased by kr. 176 billion in the 2nd quarter of 2019 and thereby reached a new record of kr. 1,616 billion. The increase was caused by the balance of payments surplus and value adjustments. Denmark's IIP constitutes 73 per cent of GDP.

Fixed-rate mortgage bonds at the highest level in 10 years

Fixed-rate mortgage bonds amount to 43 per cent of the Danish mortgage-credit market, totaling kr. 2,998 billion in August 2019. This is the highest share in 10 years.

Large investments in highly-rated bonds

Danish investors have bought foreign bonds for DKK 95 billion since January 2019. The majority of the purchases are bonds with a high credit rating (investment grade), including government bonds from the US and the Euro area as well as highly rated bank bonds from Sweden and Germany.

Who pays negative rates in the banks?

Interest rates have been low for a long time on a global scale, and banks are increasingly passing on the negative interest rates to their deposit customers. The banks have reacted at different rates, and the transaction affects different coustumer groups at differenct paces.

Record number of remortgagings and increased lending

The falling interest rate level in 2019 has meant that a record number of borrowers have converted their mortgage loans. Up to and including August this year, the mortgage institutions have disbursed loans to the Danes for a total of kr. 284 billion. The Danes' total mortgage loans have grown by kr. 63 billion for the same period.

Consistent turnover behind new reference rate

Each year, Danmarks Nationalbank conducts a survey on the turnover in the Danish interbank money market. The survey includes unsecured loans, repos and FX swaps.

Speech by Governor Lars Rohde at the CFA Society Denmark Conference 2019

Speech by Governor Lars Rohde at the CFA Society Denmark 1st Nordic Investment Conference 19 September 2019

Outlook for the Danish economy - Slightly lower growth in the coming years

The Danish economy has been in a boom phase in recent years. Over time, weaker growth abroad will affect the Danish economy, and prospects are for slightly lower growth rates over the coming years. The labour market is showing the first signs of a slowdown. The boom has evolved without considerable imbalances building up, and the Danish economy is well prepared for a slowdown. Slightly lower growth during a boom period is not an indication that fiscal policy should be eased.

Monetary and financial trends - Decline in interest rates and refinancing boom

In September, Danmarks Nationalbank lowered the interest rate on certificates of deposit by 10 basis points to -0.75 per cent. The interest rate reduction is a consequence of the reduction by the European Central Bank of its key monetary policy rate by 10 basis points. The krone rate remains stable, being slightly on the weak side of the central rate. Overall, financial conditions are accommodative and support the ongoing economic upswing. Declining interest rates have triggered a new refinancing boom during which many households have opted for lower-rate home loans. Credit growth remains moderate and has slowed slightly in 2019.

Trade conflict does not eliminate US current account deficit

The US has a current account deficit and president Donald Trump has an explicit goal of reducing it. However, new trade agreements and new tariffs do not remove the deficit, as the current account is basically determined by the balance between total savings and investments in the US. The growing public budget deficit, on the other hand, tends to increase the US deficit, but a large international demand for dollars helps keeping costs down.

The Danish economy is headed for slightly slower growth in the coming years

​The Danish economy has shown solid growth for a number of years, and that continued in the 1st half of 2019. This is Danmarks Nationalbank's conclusion in a new outlook for the Danish economy, forecasting an increase in the gross domestic product, GDP, of 1.8 per cent this year. Over the next two years, GDP is expected to rise by 1.5 per cent per year.

Mortgage refinancing supports private consumption

Falling mortgage rates have made mortgage refinancing attractive in order to reduce overall home financing costs. Many homeowners raise additional mortgage debt when refinancing. The additional funds are used for increased consumption and home improvements. However, some homeowners spend the funds on reducing other debt or building up a liquidity buffer.

Interest rate reduction

​Effective from 13 September 2019, Danmarks Nationalbank's interest rate on certificates of deposit is reduced by 0.10 percentage point. The lending rate, the current account rate and the discount rate are unchanged.

Speech by governor Lars Rohde at the annual meeting of Danish Auditors 2019

Speech by governor Lars Rohde at the annual meeting of Danish Auditors 10 September 2019

Macroeconomic and financial policy tools for climate change mitigation

Climate change is one of the greatest challenges of our time, requiring a large-scale economic transition in many areas, shows a review of the rapidly growing number of scientific articles and books on this subject, presented in a working paper.

Working Paper: Macroeconomic and financial policies for climate change mitigation: A review of the literature

Climate change is one of the greatest challenges of this century. Mitigation requires a large-scale transition to a low-carbon economy. This paper provides an overview of the rapidly growing literature on the role of macroeconomic and financial policy tools in enabling this transition.

Foreign Exchange and Liquidity and Monthly Balance Sheet, August 2019

​In August 2019, the foreign-exchange reserve decreased by kr. 1.5 billion to kr. 446.6 billion.

International payment cards gain ground

International payment cards have become significantly more prevalent over the past 10 years. This especially applies to international debit cards such as Visa Debit and Mastercard Debit. In the 1st half of 2009, international debit cards accounted for 4 per cent of the total number of card payments in Denmark against 27 per cent in the 1st half of 2019. Dankort and especially VisaDankort remain the Danes´ most used payment cards.

Who buys the 1 per cent mortgage bond?

30-year fixed-rate mortgage bonds with coupon rate of 1 per cent has since the introduction increased to kr. 116 billion. Of this, kr. 81 billion is issued in July alone, which is the largest monthly issue to date for 30-year mortgage bonds. Homeowners have converted mortgages to lower coupon rates to a record extent, in connection with the falling market rates.

Declining interest rate gains by locking in savings

Danish individuals' interest on deposits that are tied up for shorter or longer periods averaged 0.22 percent in July. The interest rate on this type of deposit has fallen by 1.1 percentage points since the beginning of 2015. By comparison, the Danish monetarypolicy interest rates have remained unchanged since the beginning of 2016.

Mortgage debt is rising in 88 municipalities

Danish households' mortgage debt has increased over the past year in 88 of 98 municipalities. The largest yearly increase again occurred in Copenhagen, where mortgage debt increased by 6.5 per cent.

Heightened risk of a global recession

Recession probabilities in the USA and the euro area have risen to high levels in recent years. A global downturn will affect a small open economy like Denmark. The risk of recession in Denmark has risen in line with the risk abroad, but the Danish economy is poised well-positioned to withstand a potential global economic downturn.

Strong business investment appetite

Over the past decade, business investment appetite has been in line with that experienced during previous crises and upswings. Investment has increased as spare production capacity has been absorbed. During the crisis and post-crisis years, investment was mainly constrained by high economic uncertainty and low foreign demand for Danish products. Since the mid-1990s, the growing weight of the service sectors in the Danish economy has structurally reduced investment.

Foreign Exchange and Liquidity and Monthly Balance Sheet, July 2019

​In July 2019, the foreign-exchange reserve decreased by kr. 1.5 billion to kr. 448.1 billion.

Increasing assets in passive investment funds

In the first half of 2019, total assets in passively managed equity funds have grown. This is due to an increase of kr. 7.4 billion in the value of their investments. The increase in assets has occurred even though investors have sold investment fund certificates for kr. 1.9 billion. The selloff in certificates happens after a considerable purchase of kr. 21 billion in 2018.

Foreign investors buy Danish shares in the first half of 2019

Foreign investors have bought listed Danish shares for kr. 4.3 billion in the first half of 2019. Foreign investors own a total of kr. 1,345 billion Danish shares corresponding to an ownership of 52 per cent of the Danish stock market. Foreign investors have owned more than half of Danish shares since the beginning of 2014.

Positive return on Danish shares in the first half

Danish listed shares gave investors a positive return, including dividends totalling 15.0 per cent in the first half of 2019. Overall, share prices have increased by 13.1 per cent, while dividend payments thus contribute by 2.0 per cent to the total return.

Increased instalments, but reduced repayment rate

Instalments on Danes' mortgage loan were kr. 18.8 billion in the first half of the year. This is kr. 118 million more than the previous six months, and 2019 will thus be another record year. The figure corresponds to an annual repayment rate of 2.31 per cent. Compared to the previous six month, the repayment rate has declined by 0.02 percentage points, despite the fact that the instalments amount has increased.

The majority of Danes' deposits receive zero interest

In April, Danish private customers increased their deposits in large and medium-sized banks to kr. 921 billion. Of this, 55 per cent had an interest rate of 0 per cent. The remaining 45 per cent of the deposit had a positive deposit rate, on average 0.65 per cent. Overall, private customers' average deposit rate was 0.3 per cent in April.

Danish investors bought US shares in 2019

Danish investors have bought a large number of North American shares for a total of kr. 16 billion since January 2019. Contrariwise, Danish investors have sold European shares, mainly caused by A.P. Møller-Maersk's sale of their stocks in French Total.

Danes invest abroad via investment funds

Private Danes had invested kr. 463 billion of their free funds in securities by end-May 2019. Of these, kr. 207 billion is invested in investment funds. An investor buying a share in an investment fund owns a part of the fund's securities holdings. Going over securities owned through investment funds gives a more precise picture of their investments, cf. chart below.

Banks are increasing competition for the robust corporate customers

In Nationalbanken's lending survey for the second quarter of 2019, 4 of the 17 surveyed banks report that competitors' behaviour contributes to easing credit standards towards corporate customers. The 4 banks are both medium and large and together constitute 21 per cent of total lending to corporate customer.

Foreign Exchange and Liquidity and Monthly Balance Sheet, June 2019

​In June 2019, the foreign-exchange reserve decreased by kr. 2.1 billion to kr. 449.6 billion.

Central government borrowing strategy in the 2nd half of 2019

The target for issuance of domestic government bonds in 2019 is increased to kr. 75 billion due to an increase in the central government's purchases of government-guaranteed mortgage bonds. The expected average sales of government bonds per auction are around kr. 3 billion at market value. The on-the-run issues will remain unchanged and focus will be on issuance in the 2-year and 10-year nominal bonds.

Fixed rate loans has the lead in 24 municipalities

Over the last year, there has been a doubling of the number of municipalities, where the homeowners' mortgage loans with a fixed interest rate excess variable-rate loans. The number has thus increased from 12 to 24 municipalities.

Halt in business deposits with negative interest rates

After several years where businesses have paid neg-ative interest rates on an increasing share of their deposits, the level now appears to have peaked. In October 2018 56 per cent of deposits from businesses had a negative interest rate, that share decreased to 53 per cent in April 2019.

Denmark's international investment position reaches new high

Denmark's international investment position, IIP, increased in the first quarter of 2019 by kr. 66 billion and thereby reached a new height of kr. 1,469 billion. This corresponds to 65 per cent of GDP.

Stock market comeback re-elevates Danes' financial wealth

The financial wealth of Danish households reaches a new record. Rising equity markets and a large savings surplus contributed to the Danes' wealth increasing by a total of kr. 306 billion in the first quarter of 2019. The increase, which is the largest since 2015, thus more than offset the decline last year, which raises household wealth to new heights.

The natural real interest rate in Denmark has declined

The natural real interest rate has declined since the 1990s. An important explanation is demographic trends in Denmark and abroad, which can be expected to continue in the coming years. Among other factors, lower natural interest rates have prompted central banks in several countries to apply unconventional monetary policies in order to stimulate the economy and increase inflation. Spillover effects from similar measures could affect the Danish economy in the future.

Danmarks Nationalbank's comments on the Danish Economic Council's discussion paper, Spring 2019

Working Paper: Real Effects of Relaxing Financial Constraints for Homeowners: Evidence from Danish Firms

We study how the introduction of interest-only mortgages in 2003 affected job creation and the skill composition of the workforce over the business cycle. The reform significantly increased household expenditure and firms reacted to this demand shock by creating jobs. These positions, however, are classified as low-skilled occupations, filled by younger and less educated workers who face earlier separations and a higher degree of unemployment ex-post.

A small number of participants dominate the interbank market

The analysis looks at the complex network created when the financial institutions exchange many thousands of transactions across the Danish interbank market. The analysis shows that there is a core consisting of a few institutions which are important in terms of spreading liquidity, and that a small number of institutions alone connect isolated institutions with the rest of the network. The interconnectedness of the network emphasise the importance of having robust central participants.

Adjustment of the model for allocating current-account limits to banks and mortgage-credit institutions

Foreign Exchange and Liquidity and Monthly Balance Sheet, May 2019

​In May 2019, the foreign-exchange reserve decreased by kr. 1.2 billion to kr. 451.7 billion.

Oversight of the financial infrastructure 2018

The report presents the conclusions from Danmarks Nationalbank's oversight of the Danish payments infrastructure in 2018. Two major system changes were introduced with the implementation of Kronos2 and the migration of kroner to the trans-European securities platform, T2S. The core payment and settlement systems and most important payment solutions extensively comply with international standards for efficiency and security. Cyber risk management was still a focus area of Danmarks Nationalbank's oversight. The maturity of the systems' cyber security efforts varies.

Declining fraud with Danish payment cards

In the first quarter of 2019, fraud with Danish pay-ment cards for 46 øre for every 1,000 kr. paid. Based on the number of transactions, this corresponds to one fraud per 5,000 transactions.

Purchase of foreign bank bonds

In total, Danish investors have purchased foreign bonds for kr. 70 billion since 2018. It is especially bank bonds with a high credit rating, AAA rating, which in particular Danish pension funds, investment funds, have bought. Conversely, they have sold for-eign government bonds, primarily German.

Fall in dividends to banks' shareholders

In the first four months of 2019, Danish listed banks paid kr. 9.2 billion to their shareholders in dividends. This corresponds to a decrease of kr. 2.3 billion compared to the same period last year. The dividends relate to the financial year 2018 and are typically paid to the shareholders in connection with the general assemblies in March and April.

Danes choose loans with low administration fees

The average administration fee on the Danes' mortgage loans is decreasing because the Danes choose more secure loan types for their financing – especially fixed-rate loans and loans with instalments. The administration fee is now, on average, 0.87 per cent, which corresponds to a monthly payment before tax of kr. 723 per kr. million borrowed.

Danes now have over kr. 900 billion in the banks

In April, total bank deposits by Danish private customers reached kr. 921 billion, corresponding to an increase of kr. 46 billion over the past year. In March and April alone, deposits increased by kr. 26 billion due to pay-outs of dividends, excess tax and holiday pay.

Prospects of lower earnings and higher capital requirements for banks

The systemic credit institutions' results remain high, underpinned by low loan impairment charges since 2010. A substantial dampening of economic growth would lead to higher loan impairment charges and consequently lower earnings in future. The requirements for banks' capital structure are likely to be tightened considerably in the coming years. This may put pressure on the systemic credit institutions' excess capital adequacy if they fail to build up further capital adequacy beforehand.

Banks face new requirements in the stress test

Danmarks Nationalbanks conducts a semi-annual stress test of the Danish banking sector. The stress test shows that the systemic banks satisfy their risk-based capital requirements and the leverage ratio requirement in a severe recession scenario. The analysis also looks at the banks' ability to satisfy MREL under stress and shows that the systemic banks depend on being able to continue to issue MREL-eligible instruments in order to satisfy the requirement.

Lower growth may cause bank earnings to fall

Economic growth continues in Denmark and many other parts of the world, but the pace is set to slowdown in the coming years. A substantial dampening of economic growth would lead to higher loan impairment charges and consequently lower earnings in the banks in the future, Danmarks Nationalbank points out in its semi-annual analysis of financial stability in Denmark.

Working Paper: The effects of macroprudential policies on house price cycles in an agent-based model of the Danish housing market

In this paper an agent-based model is used to investigate how tightening loan-to-value and loan-to-income ratios affects house price cycles. The use of an agent-based model allows for the analysis of the effects of these policies on heterogeneous households. I find that these policies reduce house price cycles in a non-linear way that depends crucially on the distribution of households and highlights the importance of macroprudential policymakers taking into account the distributions of households.

Working Paper: Multiple credit constraints and time-varying macroeconomic dynamics

I build a DSGE model where households face a loan-to-value (LTV) constraint and a debt-service-to-income (DTI) constraint. From an estimation of the model, I infer when each constraint was binding over the 1975-2017 timespan in the U.S. I also infer that DTI standards were relaxed during the mid-2000s credit boom. In the light of this, the boom could have been avoided by tighter DTI limits, but not by tighter LTV limits. The role of multiple credit constraints for the emergence of nonlinear dynamics is corroborated by county panel data.

Consultation response regarding potential candidates for a new risk-free reference rate for the Danish krone market

Danmarks Nationalbank considers it positive that a new reference rate will be based on actual transactions rather than quoted prices, as the underlying transactions will enhance confidence in the reference rate. With the aim of clarification and of strengthening confidence in reference rates in Denmark, the new reference rate should be implemented rapidly, and the existing one should be phased out. It is essential that the sector now continues this work. Solutions still need to be found for reference rates for longer maturities and for migrating existing contracts from old to new reference rates. Such solutions should match international best practice.

Danish companies increase foreign direct investments abroad

Danish investors increased their outward direct in-vestments abroad by kr. 6.3 billion in the first quar-ter of 2019.

Liquidity stress test shows that Kronos is resilient

Kronos is Danmarks Nationalbank's payment system for large-value time-critical payments and it is the heart of the Danish financial infrastructure. The analysis assesses the robustness of the system, measured as the change in participants' liquidity needs as well as their ability to settle payments in a timely manner when the system is exposed to stress in three different scenarios: (1) One large participant cannot submit payments for a full business day, (2) the money market is inaccessible, and (3) the participants' access to intraday credit is reduced. The analysis shows that the system is resilient in all three scenarios.

Danes pursuit medium risk investments

Danish private investors primarily choose medium-risk when investing through investment funds. Since the beginning of 2018, Danes' net investments in these funds total kr. 15.2 billion. Conversely, they sold either low- or high-risk investment fund shares for a total of kr. 7.3 billion over the same period.

Foreign Exchange and Liquidity and Monthly Balance Sheet, April 2019

​In April 2019, the foreign-exchange reserve decreased by kr. 1.2 billion to kr. 452.9 billion.

Increasing equity prices support investments

This analysis shows how fluctuations in equity prices affect business in-vestments in fixed capital via a "Tobin's Q channel". The main conclusion is that an increase of 10 per cent in the prices of Danish listed firms leads to an increase of 1.8 per cent in those firms' investments.

The Pension sector buys foreign shares

The insurance and pension sector, I&P, bought foreign portfolio shares and investment fund shares for kr. 2.9 billion in March. With almost 60 per cent, I&P own the majority of the Danes' total investments in foreign shares, etc., which amount to kr. 1,884 billion in total.

Large decline in mortgage bond duration

A fall in the long-term interest rates in March contributed to a decline in the average duration of fixed-rate callable mortgage bonds of 1.8 years to 3.1 years. Since the end of last year the duration has fallen by 2.8 years. Callable bonds total kr. 1,043 billion.

Mortgage rates reach new record-low level

The Danes' average mortgage rate including administration fees is below 2 per cent – precisely at 1.97 per cent. The interest rate including fees of 1.69 per cent on new mortgages issued in March is also a new record-low.

Opening of 0.25 per cent bullet loan 2022

Danmarks Nationalbank joins the Network for Greening the Financial System

​Danmarks Nationalbank has become a member of the Network for Greening the Financial System, NGFS, a group of central banks and supervisory authorities.

Lending survey 20180408

In Danmarks Nationalbank's lending survey, the banks reply that in the first quarter of 2019 credit standards for businesses have been unchanged (net figure is -0.5). Over the past 5 years the credit standards for businesses have eased overall.

Foreign Exchange and Liquidity and Monthly Balance Sheet, March 2019

​In March 2019, the foreign-exchange reserve decreased by kr. 1.5 billion to kr. 454.1 billion.

Denmark's international investment position peaked in 2018

Denmark's international investment position, IIP, increased by kr. 195 billion in 2018 and reached a new peak of kr. 1,403 billion corresponding to 63 per cent of GDP. It is no more than 10 years since Denmark had foreign debt. The foreign debt peaked 30 years ago in 1988, where it amounted to 38 per cent of GDP.

Danes' financial net wealth fell in 2018 for the first time in 10 years

Falling stock markets in the fourth quarter contributed to a kr. 179 billion decline in the financial net wealth of Danish households in 2018 - even though Danes are still net saving additional funds. The decline corresponds to each household's net wealth falling by kr. 75,000 last year. This represents the first decline in household's financial net wealth since the financial crisis in 2008.

Foreign investors buy Danish bank bonds

Danish banks have issued bonds worth kr. 406 billion at the end of February 2019. The major part is issued in foreign currency and is targeted foreign investors. Foreign investors own around 80 per cent of the Danish bank bonds.

Private investors concentrate their foreign share purchases

Danish private investors own hand-picked foreign shares for kr. 50 billion. Since the beginning of 2018, Danish private investors have purchased foreign shares for kr. 8.2 billion and sold for kr. 6.7 billion which gives a total purchase of foreign shares for kr. 1.5 billion. The transactions are concentrated on few shares. The ten most-bought shares account for almost one quarter of the total share purchase.

Low Danish deposit and lending rates for corporations

In Denmark, interest rates on corporate loans and deposits are low compared to the rates in the euro area.

Mortgages with instalments take up more

At the end of February, the Danes had mortgage loans with instalments totalling kr. 796 billion. This is kr. 227 billion more than in September 2014, when the proportion of Danes' mortgage loans with instalments reached its lowest point of 44 per cent of total mortgage lending.

The Danish economy is well prepared for external risks

The upswing in the Danish economy continues for the sixth consecutive year, and so far it has been balanced. The boom is also set to continue in the coming years, but at a slightly slower pace. This is only natural after several very good years.

Outlook for the danish economy - The Danish economy is heading deeper into the boom

The Danish economy is in a balanced upswing for the sixth year in a row. Economic growth is deemed to continue at a more steady pace. The economy is well prepared for addressing the current risks, including some dampening of growth abroad. It is important for the structural reforms implemented and the objective of structural balance of public finances in 2021 to be maintained. The expected dampening of growth does not call for expansionary fiscal measures.

The impact of the housing taxation agreement on house prices

The housing taxation agreement from 2017 contributes to higher prices for single-family houses and lower prices for owner-occupied flats towards 2022.

Monetary and financial trends - Low interest rates supports the upswing

The krone exchange rate is very close to the central rate. Danmarks Nationalbank bought kroner in December 2018 and January 2019 after a gradual weakening of the krone during 2018. Monetary policy and the broader financial conditions are accommodative and support the current economic expansion. Borrowing rates for the real economy have been falling for a number of years, but credit growth remains moderate, and overall corporations and households have strengthened their financial balances through the economic expansion.

Economic policy is to contribute to balanced growth

​The Danish economy is booming. Some sectors are experiencing labour shortages, but wages are still increasing only moderately. Economic growth is expected to continue at a slightly slower pace in the coming years. Strong economic balances give reasons to believe that the boom will not be followed by a deep recession as seen in the 2000s. That is Danmarks Nationalbank's conclusion in a new projection of the Danish economy, which forecasts growth in the gross domestic product, GDP, of 1.7 per cent this year and next year, while it is expected to be 1.6 per cent in 2021.

Annual report 2018

Danmarks Nationalbank's accounts for 2018 show a loss of kr. 24 million, compared with a loss of kr. 254 million in 2017. Danmarks Nationalbank’s revenue is subject to structural pressure from negative interest rates. The loss not being greater is i.a. due to the temporary exchange rate gain of kr. 1.4 billion as a consequence of the strengthening of the euro against.

Theme: Cost of payments in Denmark

The Danish Payments Council has surveyed the social costs of payments in Denmark for the most common methods of payment in Denmark, used by citizens and businesses. The results of the survey are presented in a series of analyses from the Danish Payments Council: Costs of Payments in Denmark. Analyses and further information are gathered on this web page.

Foreign Exchange and Liquidity and Monthly Balance Sheet, February 2019

​In February 2019, the foreign-exchange reserve increased by kr. 14 million to kr. 455.6 billion.

Each Dane pays with a card 1.2 times per day

In 2018, Danes used their payment cards 2.1 billion times in total, either in Denmark or abroad, for an aggregate amount of a staggering kr. 614 billion. This is equivalent to a daily use of 1.2 times by every adult Dane for an average amount of kr. 292 each time.

Closed for new 30-year 2 per cent mortgages

In the beginning of January, fall in interest rate led to a price of 30-year 2 per cent mortgage bonds with repayments over 100. Consequently, the mortgage credit institutions closed for admission of new 30-year loans with 2 per cent interest rate and repayments. In January 2019, the outstanding amount of the underlying bonds was thus unchanged at kr. 312 billion.

Foreign investors continue to buy fixed-rate mortgage bonds

Foreign investors continue to buy fixed-rate mort-gage bonds and owned for kr. 345 billion at the end of January, corresponding to an ownership of 32 per cent. This is triple the level of 2012, when foreign purchases of fixed-rate mortgage bonds took off.

Working Paper: A new model for money demand in Denmark: Money demand in a negative interest rate environment

Within a cointegrated VAR framework I show that the traditional money-demand relation can no longer explain the recent development of monetary aggregates in Denmark. Instead, I argue that the introduction of housing wealth and the role of precautionary demand for liquidity improves both the explanatory power of money demand and the stability of the long-run estimates. Finally, I show that the negative interest rate environment has not affected the underlying determination of money demand.

Lower mortgage interests absorb larger repayments

In 2018, Danish households paid an average interest rate of 1.20 per cent on their mortgage debt along with 0.96 per cent in administration fees. Thus households' total interest expenses incl. fees amounted to 2.16 per cent, which is the lowest level ever. Including instalments, households' had annual yield payments of 4.52 per cent in 2018.

Loss on banks' agricultural loans unchanged

2018 offered a warm and dry summer while prices on agricultural products decreased. As a result the conditions for the agricultural sector have been difficult. Still losses on banks' agricultural loans have been limited compared to previous years. In 2018 banks lost kr. 1.5 billion, which is 3 per cent below the loss in 2017 and markedly lower than 2016.

Mobile person-to person payments involve the lowest social costs

For person-to person, P2P, payments, mobile payment is the method that involve the lowest social costs. One of the reasons is that mobile payments have become very popular for settling P2P accounts. That is the conclusion in new analyses based on the Danish Payments Council's survey of costs of payments in Denmark.

The mobile phone has contributed to reducing the costs of person-to-person payments

For person-to-person, P2P, payments, mobile payment is the method that entails the lowest social costs. One of the reasons is that payment by mobile phone has become very popular for settling P2P accounts.

The riskiness of corporate credit allocation is increasing

The analysis assesses the build-up of riskiness of corporate credit allocation using an indicator based on firms' financial statements. The indicator shows an increase in the riskiness of credit allocation in the most recent upswings. Overall, riskiness was lower in 2017 than in the pre-crisis period, however. Similar development is seen across industries. Unlike in the pre-crisis period, no particular industry stands out.

Homeowners increase their borrowing and spending when house prices rise

Many Danish homeowners convert rising house prices into spending by increasing their mortgage debt. They do this by refinancing existing mortgages or raising additional loans, thereby translating home equity into liquid funds. Rising prices of owner-occupied homes thus provide scope for increased consumer spending or e.g. repayment of other debt.

Working Paper: Housing as collateral and home-equity extraction

We study the effect of house price developments on home-equity extraction and household expenditure, exploiting data covering the population of Danish homeowners between 2009 and 2016. Our findings indicate that house price increases affect home-equity extraction – and more so for homeowners close to their borrowing limits. Furthermore, the effect of house prices on expenditure is entirely driven by home-equity extraction. Our results indicate that the mortgage system plays an important role for the transmission of housing wealth increases to the real economy.

Direct investments declined in 2018

After several years of progress, outward direct investments from Denmark fell by kr. 60 billion in 2018. The inward direct investments to Denmark fell by kr. 11 billion.

Foreign Exchange and Liquidity and Monthly Balance Sheet, January 2019

​In January 2019, the foreign-exchange reserve decreased by kr. 3.5 billion to kr. 455.5 billion. The decrease reflects Danmarks Nationalbank's net sale of foreign exchange for kr. 3.3 billion, and the central government's net repayment of foreign debt for kr. 0.1 billion, cf. table 1.

Nordic-Baltic financial crisis simulation

​The Nordic and Baltic financial stability authorities have conducted a joint financial crisis management exercise. The exercise was held from 22 to 23 January 2019 and involved 31 authorities from Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, Norway and Sweden as well as relevant European Union authorities. A staff member of the International Monetary Fund observed the simulation.

Bad year for investors in investment funds

2018 has been a bad year for investors in Danish investment funds. The investment funds yielded a negative return of 5.7 per cent for their investors. The losses affected most investors and most of the types of investment funds, they have invested in.

Danish government borrowing and debt 2018

Denmark's government debt policy has been characterised by four years of very low funding costs and declining debt. In 2018, the central government debt fell to 19 per cent of GDP. The central government saves considerable interest costs by granting on-lending and buying bonds to finance social housing. At the same time, it contributes to supporting the market for government securities. Market liquidity is also supported by the central government's activity in the secondary market and by a well-functioning primary dealer model.

Appointment of Head of Economics and Monetary Policy

​Danmarks Nationalbank has appointed Signe Krogstrup as the new Assistant Governor and Head of Economics and Monetary Policy with effect from 1 June 2019.

Working Paper: Macro-financial linkages in a SVAR model with application to Denmark

We analyse macro-financial linkages in the Danish economy by estimating a structural VAR model. We construct a new financial condition index for the Danish economy. We find that financial conditions stimulated GDP before the financial crisis and deepened the subsequent recession. In recent years, financial conditions have contributed to the expansion in Denmark.

Large purchase of foreign portfolio assets in 2018

In 2018 Danish investors purchased foreign portfolio shares and bonds totalling kr. 115 billion; the largest purchase since 2014. The foreign portfolio assets amount to kr. 3,020 billion corresponding to 138 per cent of the gross domestic product, GDP.

Lower credit growth in growth areas

In 14 of the Danish municipalities with the highest price increases for owner-occupied homes (growth areas), mortgage lending to households was lower in 2018 compared with the previous year.

Large municipal differences in instalments

Household mortgage loan instalments averaged kr. 23,500 per borrowed million in 2018. The average figure covers large municipal differences in instalments. The differences have grown in recent years.

Working Paper: Housing wealth effects and mortgage borrowing

We investigate the co-movement of house prices, home equity extraction and consumption in Denmark. Using survey data we develop a measure for unanticipated house price changes which can be merged on Danish administrative data. Thus, we can show how home owners who experience an unexpected positive house price shock extract home equity and increase spending. We find that the effect is driven by home owners who could potentially benefit from refinancing existing mortgages. This indicates that the wealth effect is intimately connected to the functioning of the mortgage market.

Can texts in annual reports predict whether a firm will enter into distress?

Normally the numerical financial data of a firm is scrutinised when the soundness of the firm is assessed. But texts in the annual reports may also contain important information that can help to predict distress events.

Text-based machine learning improves distress modelling

Machine learning methods make data modelling more flexible and enable the use of unstructured data, which conventional statistical methods do not permit to the same extent. If such methods are used to include auditors' reports and managements' statements from firms' annual reports when calculating their probability of distress, the accuracy of the calculation is increased considerably. Especially the auditors' reports contribute useful information.

The krone rate has modest impact on the current account

The analysis examines the extent to which the krone exchange rate affects the current account. The krone rate turns out to have only a modest impact on the current account and it comes with a lag. Although globalisation has increased trade with the rest of the world and has resulted in production chains being split across countries, the impact of the krone rate to the current account has been stable over time. In the long term, the current account is driven by factors other than the krone rate.

Intra-EU labour mobility dampens cyclical pressures

The enlargements of the EU led to large labour migration flows from Eastern to Western Europe which expanded the labour force considerably in several of the countries currently experiencing labour shortages. The analysis indicates that when the unemployment gap narrows by 1 percentage point, inflows of EU labour increase the labour force in an EU country by 0.1 per cent p.a. This has a certain countercyclical impact. Large income differences exist between Eastern and Western Europe. As a result, Western European firms are still able to attract EU labour during boom periods.

Opening of 0.50 per cent bullet loan 2029

Loss on Danish stocks in 2018

Following several years with high returns, the return from Danish listed stocks was minus 4.3 per cent in the first 11 months of 2018. The main reason is losses on the 25 most traded stocks (the C25 index), which constitute around 85 per cent of the total market cap.

Foreign investors sold Danish portfolio shares

Since the beginning of the year foreign investors have sold Danish portfolio stocks for kr. 73 billion. This corresponds to a little over 5 per cent of the foreign holdings at the beginning of the year. For instance they have sold bank stocks amounting to kr. 20 billion of which kr. 2 billion in November.

Foreign Exchange and Liquidity and Monthly Balance Sheet, December 2018

​In December 2018, the foreign-exchange reserve decreased by kr. 9.9 billion to kr. 457.4 billion.

Fewer new risky mortgage loans

In recent years, the proportion of fixed-rate mortgage loans and loans with instalments have increased whereas the proportion of loans with variable interest rate and without instalments has decreased. This also applies in 2018 where the development has been further supported by new guidelines from the Danish Ministry of Industry, Business and Financial Affairs as of 1 January 2018.

The financial assets behind pensions grow

The financial assets managed by Danish insurance companies and pension funds reached kr. 4,182 billion at the end of the 3rd quarter of 2018. It corresponds to approximately two times Denmark's gross domestic product, GDP, and more than a doubling over the past ten years. The increase is among other things due to the Danish pension system still being in the build-up phase, i.e. pension contribu-tions exceed pay-outs. In addition there have been large returns in recent years.

Denmark's international investment position rose in the 3rd quarter 2018

Denmark's international investment position, IIP, rose by kr. 56 billion in the 3rd quarter of 2018 to kr. 1,431 billion. It has more than doubled over the last three years and now amounts to 65 per cent of the gross domestic product, GDP.

Business deposits grow despite negative interest

In October 2018 Danish sole proprietors and non-financial corporations increased their bank deposits to kr. 409 billion. This is an increase of 7 per cent compared to the year before. At the same time the share of business deposits with a negative interest increased from 43 to 55 per cent.

Working Paper: Firm-level Entry and Exit over the Danish Business Cycle

We use micro level registry data to study firm dynamics in Denmark. Similar to findings for the US, young firms are more likely to exit and to grow faster over time but Danish firms also take longer to reach maturity. We do not observe any signs of a slowdown in the entry rate or long-run scarring effects on firms entering in recessions. However, fluctuations in the entry rate have persistent effects on the long-run aggregate volume of value added.

Tests are to increase cyber resilience in Denmark

Danmarks Nationalbank and the financial sector have joined forces to establish TIBER-DK, a programme for testing the most important Danish banks and essential parts of the financial infrastructure. The aim is to increase cyber resilience and promote financial stability.

Danish Government Debt Policy, Strategy 2019

The target for sales of domestic government bonds and T-bills in 2019 is kr. 65 billion and kr. 30 billion, respectively. This is unchanged from 2018. Issuance will be focused in the 2- and 10-year maturity segments. On 23 January, a new 10-year bond with maturity in 2029 will be opened. A new 2-year bond with maturity in 2022 will also be opened in the 1st half of the year.

New financing of social housing strengthens the market for Danish government securities

In 2018, the central government has purchased all government-guaranteed mortgage bonds issued for financing social housing. The government will also bid for such bonds in 2019. The purchases allow the central government to build up series of liquid government securities and maintain a broad range of on-the-run issues. The government’s interest rate risk is independent of the coupon and maturity of the bonds purchased.

Foreign Exchange and Liquidity and Monthly Balance Sheet, November 2018

​In November 2018, the foreign-exchange reserve decreased by kr. 0.3 billion to kr. 467.3 billion.

Danmarks Nationalbank's comments on the Danish Economic Council's discussion paper autumn 2018

Speech by governor Lars Rohde at the annual meeting of Finance Denmark 2018

Speech by Governor Lars Rohde at the annual meeting of Finance Denmark 3 December 2018.

Working Paper: Consistency between household-level consumption data from registers and surveys

We explore the consistency at household-level between register-imputed and survey-based consumption figures for Denmark over the period 2002-15. We find that the marginal propensities to consume out of income estimated on the basis of register data are not significantly different to those estimated on the basis of survey data.

MREL for mortgage credit institutions: necessary and inexpensive

Despite the introduction of a minimum requirement of 8 per cent of total liabilities and own funds, the requirements for some SIFIs remain too low to enable recapitalisation and continuation in a crisis situation. A risk-sensitive MREL for mortgage credit institutions is necessary in order to ensure that there are sufficient funds to resolve them in a crisis situation. The cost of introducing an MREL for mortgage credit institutions is low. Converted into an increase in administration margins, it corresponds to an increase of less than 1 basis point on average.

Good chance that Christmas shopping will be contactless

In the 3rd quarter, the Danes made 251 million contactless card payments, corresponding to 61 per cent of all card payments in Danish stores. The proportion of contactless payments is increasing, and compared to last year there has been an increase of 24 percentage points. Accordingly, there is a good opportunity that this year's Christmas shopping will be contactless.

Medium-sized banks are expanding in growth areas

The medium-sized banks have expanded their activities in Aarhus and Copenhagen by opening branches and increasing their lending for housing purposes substantially. While the number of bank branches in Denmark has generally been falling for several years, the medium-sized banks have opened an additional 19 branches since 2012, most of them in growth areas such as Aarhus and Copenhagen.

Low interest rates and ample lending capacity put pressure on credit standards

Overall, lending growth is limited, but the medium-sized banks have opened new branches and substantially increased lending for housing purposes in growth areas. It is important for the banks to allow for potential risks associated with entering into new market areas and to refrain from using credit standards as a competition parameter. Money laundering problems have spelled out the need for increased focus on measures to combat illegal activities. Efficient anti-money laundering measures call for stronger cross-border cooperation.

The largest banks satisfy capital requirements in stress test

Danmarks Nationalbank's semi-annual stress test of the Danish banking sector shows that the largest banks satisfy all capital requirements in a severe recession scenario. The analysis also describes Danmarks Nationalbank's approach to making the adverse scenario countercyclical.

Low interest rates and ample lending capacity put pressure on credit standards

​Following a long period of low interest rates and accommodative financial conditions, there is a basis for banks to assume greater risks when granting loans. That is the conclusion in Danmarks Nationalbank's Financial Stability analysis.

Greenlandic economy - Strong growth and labour shortages

Economic growth in Greenland is high these years, and this is set to continue. The main reasons are high fish prices and larger catches. Fisheries are mainly sustainable. Unemployment is low and the risk of overheating high. Consequently, there is a need for tight fiscal policy, and large-scale investments in airports should preferably be implemented gradually. Long-term economic development requires a broader business sector, a labour force with higher qualifications and increased productivity.

Fixed rate mortgage bonds are popular abroad

Foreign investors continue to buy fixed rate mortgage bonds. In the last three months foreign investors have bought fixed rate mortgage bonds for kr. 11 billion. Foreigners now own 31 per cent of these bonds.

Fewer mortgage bonds are refinanced

During 2018, mortgage bonds totaling kr. 613 billion have been refinanced. The need for refinancing is expected to be lower in 2019, when mortgage bonds totaling kr. 539 billion mature.

Banks' business models determine their interest margin

In October 2018, the difference between large and medium-sized banks' lending and deposit rates, their interest margins, was around 1 percentage point. The medium-sized banks' interest margin was close to 3.5 per cent whereas the interest margin of large banks was around 2.6 per cent.

Increased credit growth to Danish businesses

After several years of annual credit growth around zero, total lending by banks and mortgage institutions to Danish businesses has increased by 2.9 per cent so far in 2018. This is the largest increase over the first 10 months of the year since 2008. However, credit growth was several times larger in the years preceding the financial crisis.

The banking union is not centred round joint liability

Neither the banking union nor the Economic and Monetary Union, EMU, is centred round joint liability. That is why concerns about ”footing the bill” for bank rescues in other member states should not be the key issue in an assessment of the pros and cons of Danish participation.

Speech by Governor Lars Rohde at the Macroprudential Policy Conference

Speech by Governor Lars Rohde at the Macroprudential Policy Conference in Copenhagen, 19 November 2018.

Impacts of 2016 guidelines on mortgaging of homes

Since the financial crisis, there has been increased focus on making the financial sector more resilient. One of the tools for achieving this objective is the Danish Financial Supervisory Authority's guidelines from 2016 on prudent credit assessment when granting housing loans in growth areas. These guidelines have made borrowers in growth areas borrow less than borrowers outside the growth areas, but the impact is modest. The modest impact may be due to slow implementation, scope for deviation from the guidelines and the fact that the guidelines were in line with best practice in the institutions.

Faroese economy - Mounting pressures in the labour market

The Faroese economy is booming, and labour market pressures are high. Fiscal policy should dampen demand in order to mitigate the risk of the economy overheating. Furthermore, the framework of local government finances should be tightened to ensure that the conditions are in place for fiscal policy to have a stabilising effect on the economy in future. The booming economy means that now is a good time to make public finances ready to tackle the higher expenditure associated with the ageing population in the coming decades.

Working Paper: Predicting distresses using deep learning of text segments in annual reports

We develop a probability-of-default model for Danish corporate firms based on deep learning that employs the managements' statements and auditors' reports of the annual reports in addition to the numerical financial variables. Our results show that the text segments provide a statistically significant enhancement of the prediction accuracy compared to models that do not employ the text segments, in particular for large firms. Our results furthermore show that the auditors' reports contain more relevant information than the managements' statements.

Small decline in direct investments this year

Both outward and inward direct investments have declined slightly in the three first quarters of 2018. They were reduced by kr. 26 and 11 billion respectively after a number of years with progress in outward investments.

While the sun is shining, prepare for a rainy day

The financial crisis ten years ago brought large costs to society and – as a consequence – an increase in policymakers’ focus on risks to the financial system as a whole and how to prevent and mitigate them, i.e. macroprudential policy. This paper gives an overview of key features of the Danish financial system and points to current macroprudential policy challenges. The paper sets the stage for a conference on macroprudential policy on 19 November 2018 that Danmarks Nationalbank hosts together with the European Department of the International Monetary Fund (IMF), and the Center for Financial Frictions (FRIC) at Copenhagen Business School (CBS).

Foreign Exchange and Liquidity and Monthly Balance Sheet, October 2018

​In October 2018, the foreign-exchange reserve decreased by kr. 298 million to kr. 467.6 billion.

Working Paper: Consumption Heterogeneity: Micro Drivers and Macro Implications

This paper aims to test the microfoundations of consumption models and quantify the macro implications of heterogeneity in consumption behavior. We propose a new empirical method to estimate the sensitivity of consumption to permanent and transitory income shocks and apply it to administrative data from Denmark. We find that households who stand to lose from an interest rate hike are more sensitive to income shocks than those who stand to gain. This interest rate exposure channel is potentially more important than the standard intertemporal substitution channel.

Increase in passive investment funds

In the first three quarters of the year, net invest-ments in passive equity funds totalled kr. 13.9 billion. In comparison, investments in active equity funds amounted to kr. 1.3 billion.

Publication times change as a result of Target2-Securities connection

​As from today, publication of the daily net position and monthly foreign exchange reserve figures will take place at 5:00 pm instead of 4:00 pm as has so far been the case. The time is changed because of the Danish krone's connection as from today to Target2-Securities, T2S.

Working Paper: Can machine learning models capture correlations in corporate distresses?

We implement a regularly top-performing machine learning model and find that the added complexity in the model does not imply that the model is better at capturing correlation in corporate distresses compared to traditional distress models. Instead, we propose a frailty model, which allows for correlations in distresses. This model demonstrates competitive performance in terms of ranking firms by their riskiness, while providing accurate risk measures of a corporate loan portfolio.

Increasing bond issues financing F5 mortgages

By end-September 2018, bonds totalling kr. 604 billion were issued to fund F5 mortgages. This is more than a twofold increase since September 2012. An F5 mortgage has an adjustable rate, which is fixed every five years. These bonds now fund more than half the Danish adjustable rate mortgages – and a third of adjustable rate mortgages and floaters combined (variable rate mortgage bonds).

Moderation of capital flows since the financial crisis

Capital flows between Denmark and abroad decreased after the financial crisis erupted in the fall of 2008. The capital flows also decreased globally.

Danes' money is primarily bank deposits

Nearly 95 per cent of the money that the private sector immediately can use for payments is ordinary bank deposits. The rest is cash. While cash payments occur physically, payments with deposits are digital, i.e. directly transfers from your own bank account to the recipient's account, for example by using debit cards or smartphones.

Danes repay more on their mortgages

Danish households are increasingly repaying on their mortgage loans. Instalments paid on loans totaled kr. 26.2 billion in the first three quarters of 2018. The comparable figure for last year was kr. 24.3 billion; hence instalments have increased by 7.8 per cent.