Analysis

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12-10-2021

Danmarks Nationalbank's gold – a historical overview

There is still public interest in Danmarks Nationalbank's gold stock, although it has been many years since gold played an important role in the cash system and more generally in monetary and foreign exchange policies. The analysis provides an overview of the historical background of the gold stock based on source material from Danmarks Nationalbank's archives at the Danish National Archives.

22-09-2021

Outlook for the Danish economy - The economy heading back towards a moderate boom

Rapid recovery after the lockdowns has resulted in recruitment difficulties for companies. Economic growth is expected to continue, with the economy moving into a moderate boom. Bottlenecks are not expected to develop into an actual overheating of the economy, but several prerequisites are present for a scenario with significantly stronger growth. The Government should therefore be prepared to tighten its economic policy more than planned.

22-09-2021

Monetary and financial trends - Accommodative financial conditions strengthen the upswing

The recovery of the western economies has contributed to higher corporate earnings in Denmark and higher equity prices. Danish long-term bond yields have edged up slightly since March, but remain low. Overall, financial conditions are accommodative for the growth in GDP.

15-09-2021

The pension sector's alternative investments

The pension sectors alternative investments of kr. 500 billion have provided diversification and stable returns. Most companies have room to invest even more in alternatives if deemed appropriate in terms of risk and return. An increased share of alternatives can impact both solvency and liquidity, where especially liquidity can become tight if e.g. interest rates increase. Strong management of short- and long-term risks is thus important.

06-09-2021

New ECB strategy and the Danish economy

The ECB's new monetary policy strategy was published on 8 July 2021. The analysis presents the changes and their potential impacts on the Danish economy. ECB's new monetary policy strategy does not influence the way in which Danmarks Nationalbank conducts monetary policy. Overall, the changes are assessed to have small potential positive impacts on the Danish economy.

01-09-2021

How cyber resilient is the Danish financial sector?

Key financial sector participants have strong external defences and have improved their capability to detect and respond to cyber attacks. Increased focus is required on the protection of critical data and the capability for safe and effective recovery of core systems. This is demonstrated by Danmarks Nationalbank's cyber resilience surveys.

02-07-2021

Housing market robustness should be strengthened

The pandemic has led to high trading activity and house price increases. This creates extraordinary uncertainty about future house prices. By the end of 2023, house prices are expected to have risen significantly. Measures are needed now, such as increased amortisation requirements and lower interest deductions that can strengthen the robustness of the Danish economy – both now and in the future.

01-07-2021

Climate change and the role of central banks

For the first time, Danmarks Nationalbank takes an overall stand on its role in relation to climate change and the transition to a green economy. Climate change and the transition may pose challenges to the objectives of price and financial stability. Central banks have a task in adapting to the new challenges.

30-06-2021

Consistent recovery and resolution of small and large banks in Europe

In 2014, the EU adopted a new framework for recovery and resolution in order to sever the tie between banks and government, so that the taxpayers no longer had to pick up the tab for failing banks. In Denmark, the framework for recovery and resolution constituted a minor innovation because Denmark already had a framework ensuring that the creditors of failing banks absorbed losses. The European framework is still evolving. The Danish experiences are useful in a European context.

25-06-2021

Female company owners pay higher interest rates

Using microdata, the analysis demonstrates that female company owners pay higher interest rates on corporate loans than their male counterparts. The interest rate differential is both economically and statistically significant, and does not disappear when adjusting for relevant company and loan characteristics using sophisticated statistical methods.

23-06-2021

Outlook for the Danish economy - Danish economy is heading for a mild boom

The reopening of the Danish society is in full swing characterised by high private demand. Growth is expected to continue, and there are already large price increases in the housing market as well as signs of bottlenecks building up. The Government should prepare tightening fiscal policy more than planned, and there is a need for measures to strengthen robustness in the housing market.

17-06-2021

Strategy Announcement - Central government borrowing strategy in the 2nd half of 2021

The target for sales of domestic government bonds in 2021 is lowered to kr. 110 billion from kr. 125 billion. The on-the-run issues remain unchanged and focus will continue to be on issuance in the 2-year and 10-year nominal bonds. Issuance of short-term papers is increased and the total outstanding amount of T-bills and commercial papers is expected to be kr. 95 billion by the end of 2021, of which up to kr. 60 billion in T-bills.

10-06-2021

Flood risk can potentially affect a large share of credit institutions' exposure

Danish credit institutions have substantial exposures collateralised by real estate at risk of flooding in future climate scenarios. These exposures could amount to kr. 200 billion by the end of this century. Some credit institutions have a large share of the exposures at risk concentrated in the same geographical area.

27-05-2021

Financial stability - Build-up of risks in credit institutions

The banks are ready for the ongoing economic recovery: Their lending to hard-hit corporations is limited, and provisions have been made to handle losses. But the booming housing market gives cause for concern. Higher down payment requirement and amortisation requirement for highly indebted homeowners are among the measures that should be considered in order to limit vulnerability in connection with a subsequent drop in house prices.

27-05-2021

A few systemic banks have capital shortfall in severe recession

A stress test of the banking sector shows that a few systemic banks fall short of their risk-based capital requirements in a severe recession scenario. Most banks are generally better capitalised than previously, but they are challenged in the stress test by weaker earnings, which means they are less resilient under stress. The stress test also shows that the banks must continuously ensure sufficient surplus relative to the MREL.

10-05-2021

Banks ready for expiry of government liquidity support

The banks are well equipped to make loans to viable corporations when the deferred tax payment deadlines and tax loans fall due. At the same time, the corporations' use of the relief packages have dropped to a low level. On this basis, it is assessed that the banks will be able to handle any deterioration in the creditworthiness of their customers on expiry of the relief packages.

27-04-2021

The response of private customers to negative deposit rates

Negative deposit rates for household customers are now used by most banks in Denmark. Furthermore, the thresholds for when negative interest rates are payable have gradually been reduced. There are indications that household customers reduce their deposits when their bank announces negative interest rates. They also appear to react to the prospects of negative deposit rates by increasing their demand for investment fund shares and switching their deposits to pool schemes.

12-04-2021

Refinancing has boosted the interest rate pass-through to fixed-rate mortgages

Half of homeowners in Denmark finance their mortgages via fixed rate loans. Danish fixed rate mortgages are special, as they can be re-financed without the outstanding debt being significantly increased. This makes refinancing attractive when interest rates decrease. Declin-ing interest rates since the financial crisis have implied that many homeowners have refinanced their fixed rate mortgages to lower rates. This has increased the interest rate pass-through and thus supported the transmission of monetary policy rates to homeowners' budgets.

17-03-2021

Outlook for the Danish economy – Prospects of a rapid recovery once restrictions are eased

The second wave of the pandemic and new lockdowns have temporarily interrupted economic recovery and resulted in new large losses of activity in large parts of the Danish and international economies during the winter. However, other parts of the economy are seeing high activity, including construction and the housing market. Vaccination of the population and reopening of society have begun. Large savings, disbursement of holiday pay funds and accumulated demand provide a sound basis for a heavy increase in activity when the economy is less constrained by restrictions. Overall, activity is expected to have recovered towards the end of 2021.

17-03-2021

Monetary and financial trends - Accommodative financial conditions support the real economy

Despite long term yields in particular having increased in 2021, the interest rate level is still low. Simultaneously, equity and house prices have increased during the past six month, and the financial conditions are considered accommodative. The Danish krone is moderately strengthened against the euro since March 2020.

11-03-2021

Technical adjustment of the monetary policy instruments

Danmarks Nationalbank introduces one single rate for deposits and one single rate for monetary policy loans. Simultaneously, the difference between the monetary policy rates is narrowed. The adjustments ensure more stable money market rates and thus a more predictable effect on the Danish krone. The adjustments are not intended nor expected to affect the level of money market rates or the Danish krone.

04-03-2021

Crisis management of credit institutions – what is new?

Today, we have crisis management rules in Denmark and the rest of the EU which ensure crisis management of failing credit institutions without the use of government funds. A recent revision of the rules makes it more likely that senior unsecured creditors will have to contribute to the crisis management of a failing credit institution. It is important that senior unsecured creditors are aware of the risk and take it into account in their risk management.

08-02-2021

Are climate change risks priced in the US stock market?

We construct measures of physical and transition risks by conducting textual analysis of climate news. Using U.S. stock prices, we find that only the short-term risks elicited by the political debate are priced. Longer running risks elicited by news on international summits, global warming and natural disasters are not priced.

03-02-2021

Denmark supports the IMF's crisis response

The International Monetary Fund (IMF) has approved a historically large number of loans during the coronavirus crisis. The demand for IMF loans is expected to increase further as a result of the coronavirus crisis and vulnerabilities in a number of countries. Danmarks Nationalbank contributes to the IMF's crisis response and has made new lending resources available to the IMF on behalf of Denmark.

26-01-2021

Data-driven effort strengthens the fight against money laundering

Danmarks Nationalbank, in collaboration with a large Danish bank and other institutional actors, has shown that an innovative risk-based approach based on multiple data sources, among which granular transaction data, can support the fight against economic crime. Realising the full potential of such an approach requires combining data across banks and public institutions.

21-12-2020

Strategy announcement - Central government borrowing strategy 2021

The target for sales of domestic government bonds is kr. 125 billion. Issuance will be focused in the 2-year and 10-year nominal bonds. On 20 January, a new 10-year bond with maturity in 2031 will be opened. A new 2-year bond with maturity in 2024 will also be opened in the 1st half of the year. The target for sales of domestic T-bills is kr. 60 billion, and the outstanding amount of commercial papers will be reduced as the temporary Covid-19 measures are phased out.

16-12-2020

Faroese economy - The Faroese economic boom is losing momentum

Nine months after the outbreak for the corona pandemic, employment on the Faroe Islands is high, unemployment very low, and parts of the economy experience labour shortages. However, exports have lost speed this year on the back of extraordinary growth, and the economic boom now seems to have peaked. In the future, more elderly and less working-aged challenges the sustainability of public finances. It is important to prioritize reforms early on that bring a balance to income and expenses in the future.

15-12-2020

Outlook for the Danish economy - Spread of coronavirus delays recovery

Parts of the Danish economy are dominated by high activity, while other parts are limited by restrictions that delay recovery. Economic growth has slowed down, but is expected to pick up in 2021 as the population is vaccinated and restrictions are eased. Fiscal policy is currently stimulating demand in industries not affected by restrictions and in which activity is already high. Fiscal policy should not be eased further, but temporary relief measures may be extended to industries affected by restrictions.

10-12-2020

Financial stability - Banks should keep their powder dry

So far, the credit institutions have come through the crisis relatively unscathed. With a number of relief packages, the central government has provided a cushion under large parts of the Danish corporate sector. However, credit institutions must prepare for the end of the schemes. In line with the government relief packages being phased out, the credit institutions will have to expect higher losses and a deterioration in the credit quality of their lending. The situation remains highly uncertain, and the credit institutions should be cautious when planning dividend payments.

10-12-2020

A few banks fall short of capital requirements in stress test

A stress test of the banking sector shows that a few banks fall short of the capital buffer requirements in a severe recession scenario. However, due to the suspension of dividend payments and share buybacks, most banks are more resilient to stress than previously. For the first time, Danmarks Nationalbank uses the credit register data to allocate impairment charges more accurately among banks' corporate customers.

25-11-2020

Can capital buffers actually help banks in times of crisis?

Banks' capital buffers should function as a cushion and be able to absorb losses during an economic downturn, so that banks can continue lending to the economy. The usability of buffers might however be limited, if other requirements, such as the leverage ratio requirement and MREL, exceed the capital requirements. This is the case for several of the largest Danish banks. Future amendments to regulation should therefore take into account the interaction between requirements, so that all requirements can serve their purpose.

19-11-2020

Corporations deleverage and invest when charged negative interest rates on bank deposits

Many corporations are now being charged negative interest rates on their bank deposits. These corporations change banks and deleverage to a greater extent than other corporations. They also increase their investment in new capital equipment and create more new jobs.

12-11-2020

Greenlandic economy - Economic growth halted and growing government deficit

The coronavirus pandemic has ended years of solid growth. Travel restrictions have left their mark on tourism and other sectors heavily reliant on foreign visitors. The important fisheries industry is less affected by the global economic downturn, and fisheries risks are particularly associated with lower fish and shellfish prices in the world market. Additional expenditure related to emergency flights, relief packages, etc. is putting a strain on central government finances. Therefore, the outlook is for an increase in government debt, albeit from a low level. For a number of years, growth in public consumption has exceeded budgeted levels. To ensure a sustainable balance between government revenue and expenditure, public sector efficiency measures will be needed going forward.

10-11-2020

Danish Mortgage bond liquidity briefly impacted by covid-19

In mid-March, there was great uncertainty on the financial markets, resulting in increasing credit and liquidity costs. The Danish mortgage bond market was also affected, and mortgage rates rose sharply in the course of a few days. This analysis describes the development in the market liquidity on the Danish mortgage bond market in mid-March 2020 with specific focus on the primary issuance market. The analysis shows that mortgage credit institutions were still able to issue and sell bonds on the market, but that market liquidity was significantly reduced during the days with greatest uncertainty

03-11-2020

A gradual green transition supports financial stability

Danmarks Nationalbank has performed a climate stress test to highlight transition risks in the banking sector. The analysis shows that the banks are generally well equipped to handle transition risks. However, a drastic transition in which the banks need to make large impairment charges over a short time frame may result in a capital shortfall. The banks should take climate risks into account in their risk management and capital planning.

27-10-2020

Lower borrowing needs in Danish corporations compared to European during COVID-19

Corporate borrowing has been virtually unchanged in Denmark during the first wave of the pandemic, whereas corporations in a number of European countries have increased their borrowing heavily. The national differences especially reflect varying corporate liquidity needs. Corporate borrowing has been higher in countries that have seen a heavy economic downturn. The capital reserves accumulated by corporations prior to the first coronavirus outbreak have also had an impact on their borrowing needs. Another explanation of the varying borrowing needs and loan supply may be the extensive policy measures implemented by several countries to support corporate liquidity.