Literature based term paper on i i i i

financial industry of Denmark

i i

Groupi members:

Noori Uli Hassan------------MBAi 061

Iftikhari waqar--------------MBAi 07

Salmani Iqbal---------------MBAi 016

Sidra-------------------------MBAi 021

Ibtahal-----------------------MBAi 032
1

Table of contents:
i i

Thei Economici stabilityi ofi Denmark…………………….

Executivei summary………………………………….

Financiali marketsi ofi Denmark………………………..

Typesi ofi financiali markets……………………………

Discussioni ofi thei stocki exchangei ofi thei country………

Introductioni toi thei financiali systemi ofi thei country……..

Financiali instrumentsi usedi ini thei country……………….

Foreigni exchangei marketi ini thati country……………

Reasonsi fori thei financiali crisisi ini thei country………………..

Investmenti andi investingi patterns……………………

Introductioni toi banks…………………………………

Introductioni toi bankingi system………………………

Commerciali bankingi ini country………………………

Structurei ofi assetsi andi liabilitiesi ofi banks…………...

Riski management……………………………………..

Baseli IIi accord………………………………………..

Challengesi facingi byi thei bankingi industry………………

Corporatei governancei ofi banks………………………

Tradingi processi ofi bankingi system…………………..

References……………………………………………

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The Economic stability of Denmark:

i i i i

Denmarki isi ai strongi andi historicallyi stablei economy.i Itsi economici freedomi scorei isi
78.3,i makingi iti isi thei economyi ofi i 8thi freesti ini thei 2020i Index.i Itsi overalli scorei hasi
increasedi byi 1.6i points,i ledi byi increasesi ini scoresi fori governmenti integrityi andi
judiciali effectiveness.i Denmarki isi rankedi 4thi amongi 45i countriesi ini thei Europei
region,i andi itsi overalli scorei isi welli abovei thei regionali andi worldi averages.

Denmark‘si economyi hasi beeni ini thei mostlyi freei categoryi fori 19i yearsi buti stilli hasi noti
brokeni throughi toi thei topi ranksi ofi thei free.i Thei reasonsi arei excessivei governmenti
spendingi andi ai taxi burdeni thati isi simplyi tooi heavy.i Thosei twoi problemsi mayi explaini
whyi GDPi growthi overi thei pasti fivei yearsi hasi beeni modest.

Executive summary:
i

Throughi thei starti ofi Liberalizationi andi Globalizationi therei hasi beeni ai hugei surgei ini
businessesi wantingi toi investi ini variousi countriesi aroundi thei world.i Keepingi thisi ini
mind,i thei governmenti ofi Denmarki isi keepingi noi stonei unturnedi toi attracti investorsi toi
investi ini Denmark.i Denmarki nowi hasi ai stablei economyi whichi isi welli acceleratedi fori
longi termi internationali competitiveness.

Well-functioningi andi efficienti infrastructurei playsi ai criticali rolei ini promotingi

financiali stabilityi andi economici growth.i Thei Reservei Banki overseesi Denmark‘si
financiali marketi infrastructuresi andi operatesi twoi majori systemsi (ESASi andi Danishi
Clear).i Treasuryi billi issuedi byi thei Majestyi thei Queeni ini thei righti ofi Denmarki (thei
―Crown‖).i Thei Billsi arei Denmarki dollar,i fixed-termi debti securities.

Stocki exchangesi playi ai vitali rolei ini thei functioningi ofi thei economyi byi providingi thei
backbonei toi ai moderni nation'si economici infrastructure.i Stocki exchangesi helpi
companiesi raisei moneyi toi expand.i Historyi andi formationi ofi Danishi Xi havei itsi originsi
ini severali regionali stocki exchangesi throughouti Denmarki datingi fromi thei 1870s.

Triggeredi byi risingi crediti lossesi oni USi residentiali mortgagesi overi thei periodi 2007–09,i
thei globali economyi experiencedi itsi mosti significanti financiali shocki sincei thei Greati
Depression.i therei havei beeni importanti pressuresi andi vulnerabilitiesi exertedi oni thei
banksi ini Denmark,i thei bankingi systemi avoidedi thei deepi systemici crisesi seeni ini otheri

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bankingi systems,i whichi ultimatelyi necessitatedi recapitalization,i ori eveni

nationalization,i ofi financiali institutionsi ini Europei andi thei US.

1. Financial markets and its types in Denmark:

i i i i i i

Financiali marketi infrastructure:

Financiali marketi infrastructuresi (FMIs)i providei channelsi throughi whichi payments,i

securities,i derivativesi ori otheri financiali transactionsi arei cleared,i settledi ori recorded.i
Well-functioningi andi efficienti infrastructurei playsi ai criticali rolei ini promotingi
financiali stabilityi andi economici growth.i Iti cani strengtheni thei marketsi theyi servei andi ifi
iti isi noti managedi properly,i theyi cani posei significanti risksi toi thei financiali system.i Ai
stablei financiali systemi therefore,i dependsi oni carefuli management.

FMIsi arei multilaterali systemsi includedi alli ofi thei operatori andi participants.i FMIsi
typicallyi establishi ai seti ofi commoni rulesi andi proceduresi fori alli participants,i ai
technicali infrastructure,i andi ai specializedi risk-managementi frameworki appropriatei toi
thei risksi theyi incur.i Ini Denmark,i therei arei fouri keyi typesi ofi FMIs:i paymenti systems,i
securitiesi settlementi systems,i centrali securitiesi depositories,i andi centrali
counterparties.1

Thei Reservei Banki overseesi Denmark‘si financiali marketi infrastructuresi andi operatesi
twoi majori systemsi (ESASi andi Euri Clear).i Denmark‘si maini paymenti systemsi arei
showni ini thei giveni picture.

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Moneyi market:

Thei Danishi moneyi marketi isi ofteni definedi asi thei marketi fori inter-banki loani
agreementsi andi interest-ratei contractsi denominatedi ini kroneri withi ai maturityi ofi upi toi
aroundi onei year.i However,i thei definitioni isi noti entirelyi clear,i sincei debti securitiesi
withi ai shorti remainingi termi toi maturityi arei ofteni tradedi oni money-marketi terms.i
Furthermore,i thei participantsi ini thei moneyi marketi noti onlyi comprisei banks,i buti alsoi
institutionali investors,i mortgage-crediti institutesi andi largei businessi enterprises.i Thei
moneyi marketi servesi severali purposes,i suchi asi thei exchangei ofi liquidityi amongi
participantsi andi thei managementi ofi short-termi interesti ratei positions.i Ani efficienti
moneyi marketi isi alsoi ani importanti basisi fori thei securitiesi market.i Ai well-functioningi
moneyi marketi isi furthermorei essentiali toi thei cleari transmissioni fromi Denmark‘si
Nationali bank‘si officiali interesti ratesi toi thei short-termi marketi rates,i andi isi therebyi
importanti toi monetaryi policy.i Thei instrumentsi ini thei Danishi moneyi marketi cani bei
roughlyi dividedi intoi twoi groupsi ini termsi ofi theiri initiali impacti oni cashi positions.

 Thei firsti comprisesi cashi marketi productsi fori whichi thei conclusioni ofi ai
contracti requiresi immediatei exchangei ofi liquidity.i Thesei productsi includei
deposits,i repoi agreements,i foreign-exchangei (fx)i swapsi andi bondsi withi ai shorti
remainingi termi toi maturity.
 Thei secondi groupi consistsi ofi interest-ratei derivativesi wherei liquidityi isi onlyi
exchangedi asi settlementi ofi interest-ratei differencesi ati ai fixedi timei ini thei
future.i Interest-ratei derivativesi includei Tomorrow/Nexti interest-ratei swapsi
(T/Ni IRS)i andi FRAsi (Forwardi Ratei Agreement).i Theyi cani bei standardizedi ori
non-standardizedi productsi ini termsi ofi maturity,i settlementi andi collateral.

Thei cashi marketi productsi arei usedi primarilyi fori thei exchangei ofi liquidity.i Moreover,i
certaini collateralizedi transactionsi ini thei cashi marketi mayi bei driveni byi demandi fori thei
underlyingi asset.i Ai repoi agreementi may,i fori example,i bei basedi oni ai requirementi fori ai
specifici paper,i ini whichi casei iti isi calledi ai "special",i cf.i Boxi 1.i Interest-ratei derivativesi
arei usedi toi hedgei interest-ratei risksi andi toi activelyi takei marketi positionsi ini interesti
rates.

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Interest-ratei derivativesi arei normallyi settledi ini thei moneyi marketi accordingi toi
referencei interesti rates.i Thei mosti frequentlyi usedi referencei interesti ratesi ini thei Danishi
moneyi marketi arei Cibori (Copenhageni Interi Banki Offeredi Rate)i andi thei
Tomorrow/Nexti interesti rate.i

Marketi participantsi andi tradingi structure:

Recenti yearsi havei seeni increasedi concentrationi ofi thei Danishi moneyi marketi ini termi ofi
bothi participantsi andi marketplaces.i Afteri mergersi ini thei financiali sectori thei moneyi
marketi isi nowi characterizedi byi twoi majori players.i Tradingi ini thei moneyi marketi takesi
placei viai brokersi ori directlyi amongi thei participants.i Thei money-marketi brokersi acti asi
ai typei ofi marketplacei fori thei exchangei ofi pricesi fori ai numberi ofi products.i Mosti ofi thei
tradingi activityi ini thei moneyi marketi isi viai directi contacti betweeni thei counterparties.i
Thisi savesi brokeri costsi andi alsoi providesi fori tradingi ofi non-standardizedi products,i
maturitiesi andi transactioni sizes.i Ini additioni toi thei moneyi marketi therei isi thei special-
termi marketi wherei majori businessi enterprisesi andi institutionali investorsi cani depositi
surplusi fundsi withi thei banksi oni money-marketi terms.i Thei onlyi brokeri ini thei Danishi
special-termi marketi discontinuedi itsi activitiesi asi fromi Januaryi 2018.i Electronici
tradingi systemi wherei bidi andi offeri interestsi arei statedi openlyi enhancei transparencyi
andi reducei search,i settlementi andi documentationi costs.i Onei explanationi fori thei
absencei ofi suchi marketplacesi asi standardi ini thei Danishi moneyi marketi mayi bei thati thei
lacki ofi criticali massi makesi thei developmenti andi implementationi ofi thei requiredi
softwarei lessi profitable.

Cashi marketi products:

 Depositsi arei uncollateralizedi krone-denominatedi loansi withi standardizedi

maturitiesi fromi onei dayi upi toi 12i months.
 Reposi arei collateralizedi krone-denominatedi loansi withi standardizedi maturitiesi
fromi 1i dayi upi toi 6i months.i Thei collaterali consistsi ofi debti securities,i typicallyi
bonds.i Thesei transactionsi arei alsoi calledi repurchasei agreements,i sincei thei
selleri ofi thei bondsi (recipienti ofi cash)i oni conclusioni ofi thei agreementi
undertakesi toi repurchasei thei securitiesi ati ai fixedi futurei timei ati ai fixedi price.i
Reposi cani thusi bei viewedi asi simultaneousi spoti andi forwardi transactionsi ini
bondsi wherebyi bothi transactionsi entaili ai changei ofi ownershipi ofi thei securities.

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 Foreign-exchangei swapsi ori fxi swapsi arei collateralizedi krone-denominatedi

loansi withi standardizedi maturitiesi fromi 1i dayi upi toi 12i months.i Thei collaterali
isi foreigni exchange,i typicallyi dollars.i Thei fxi swapi entailsi simultaneousi spoti
andi forwardi transactionsi ini foreigni exchangei oni conclusioni ofi thei contract.i
Thei buyeri receivesi kroneri andi deliversi foreigni exchangei toi thei seller,i whilei oni
expiryi thei buyeri receivesi thei foreign-exchangei amounti againsti paymenti ofi thei
seller'si outstandingi kronei amount.
 Bondsi withi ai shorti remainingi termi toi maturityi arei ofteni tradedi oni money-
marketi termsi andi mayi bei includedi ini thei groupi ofi moneyi marketi instruments.i
Thisi groupi ofi bondsi includesi e.g.i short-termi mortgage-crediti bondsi issuedi toi
financei adjustable-ratei mortgages,i andi Treasuryi bills.i Treasuryi billsi arei listedi
securitiesi issuedi ati auctioni viai Denmark‘si Nationali banki oni behalfi ofi thei
centrali government.i Thesei arei zero-couponi securitiesi soldi ati belowi pari andi
redeemedi ati pari oni thei expiryi date.i Oni 1i Mayi 2001i ai 12-monthi Treasuryi billi
wasi introduced,i i.e.i thei maturityi isi 12i monthsi fromi issue.i Ai newi seriesi isi
openedi fori issuei fouri timesi ai yeari andi thei monthlyi auctionsi normallyi onlyi
comprisesi seriesi withi ai remainingi termi toi maturityi ofi ati leasti 3i months.
 Certificatesi ofi depositi arei issuedi byi Denmark‘si Nationali banki asi ani elementi
ofi thei managementi ofi liquidityi ini thei moneyi market.i Thei certificatesi ofi depositi
arei zero-couponi securitiesi soldi ati ai pricei belowi pari andi redeemedi ati par,i
wherebyi thei yieldi correspondsi toi thei ratei ofi interesti fori certificatesi ofi deposit.i
Thei certificatesi ofi depositi normallyi havei ai maturityi ofi 14i daysi andi cani solelyi
bei tradedi amongi Denmark‘si Nationali bank‘si monetary-policyi counterparties.

Interesti ratei derivatives:

 T/Ni IRSi (Tomorrow/Nexti Interest-Ratei Swap)i isi ai short-termi interesti ratei

swapi usingi thei T/Ni ratei asi ai referencei interesti rate,i cf.i Annexi 2.i Oni conclusioni
ofi ai T/Ni interest-ratei swapi thei partiesi agreei toi swapi ai variablei interesti ratei (thei
T/Ni interesti rate)i fori ai fixedi interesti rate.i Thei agreementi cani bei concludedi fori
standardizedi maturitiesi ofi betweeni 1i andi 12i months.i Thei buyeri undertakesi toi
payi ai fixedi interesti ratei toi thei selleri againsti receipti ofi thei T/Ni ratei fromi thei
selleri fori thei termi ofi thei agreedi maturity.i Initiallyi thei agreementi entailsi noi
paymenti ofi principali betweeni thei parties,i andi oni expiryi onlyi ai neti amounti isi

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settled,i dependingi oni thei developmenti ini thei T/Ni interesti rate.i CITAi
(Copenhageni Interesti T/Ni average)i isi ofteni usedi synonymouslyi withi T/Ni IRS.
 FRAsi (Forwardi Ratei Agreement)i entaili thei freezingi ofi ani interesti ratei fori ani
agreedi principali fori ai giveni periodi ini thei future.i Purchasei ofi ani FRAi fixesi thei
financingi interesti ratei fori ai floating-ratei loan,i whilei salei ofi ani FRAi fixesi thei
interesti ratei fori ai floating-ratei deposit.i Standardizedi FRAsi runi fori 3i ori 6i
monthsi withi settlementi oni IMMi (Internationali Monetaryi Market)i daysi 4i timesi
ai year.i Noi paymentsi arei exchangedi oni conclusioni ofi thei agreement.i Cibor,i cf.i
Annexi 2,i isi usedi asi thei referencei interesti ratei fori standardizedi FRAs,i andi oni
thei datei ofi commencement i thei discountedi differencei betweeni thei agreedi fixedi
interesti ratei andi 3-i ori 6-monthi Cibori isi settled.

Treasuryi bills:

Treasuryi billi issuedi byi thei Majestyi thei Queeni ini righti ofi Denmarki (thei ―Crown‖).i Thei
Billsi arei Denmarki dollar,i fixedi termi debti securities.i Thei initiali offeri ofi thei Billsi byi thei
Crowni willi bei madei toi Wholesalei Investorsi only.i Retaili Investorsi cani onlyi purchasei
thei Billsi ini thei secondaryi market.i Seei sectioni 9i ofi thisi documenti (Howi toi apply)i fori
furtheri detailsi oni howi toi applyi fori thei Billsi ini thei secondaryi market.i Regulationi 72Ai
ofi thei Financiali Marketsi Conducti Regulationsi appliesi toi thisi offer.i Thisi meansi that,i
excepti ini veryi limitedi circumstances,i beforei sellingi anyi Billsi toi ai Retaili Investori ini thei
secondaryi marketi ai Wholesalei Investori musti providei thei Retaili Investori withi ai copyi
ofi thei mosti recenti Producti Disclosurei Statementi fori thei Bills.i Seei sectioni 4i ofi thisi
documenti (Keyi featuresi ofi Bills)i underi thei sub-headingi ―Sellingi restrictions‖i fori
furtheri details.i Thei Billsi arei availablei ini ai rangei ofi maturities,i althoughi usuallyi Billsi
arei issuedi withi maturitiesi ofi threei months,i sixi months,i ori onei year.i Thei Principali
amounti ofi thei Billsi isi repaidi oni thei Maturityi Date.i Noi Interesti isi payablei oni thei Bills. i
Thei issuei pricei ofi thei Billsi isi calculatedi ini accordancei withi thei Informationi
Memorandum.i Thei Billsi arei usuallyi issuedi ati ai discounti toi theiri Principali amount.i Thei
leveli ofi thei discounti determinesi thei initiali ratei ofi returni oni thei Bills.i Thei outstandingi
Principali amounti ofi eachi Billi will,i subjecti toi anyi deductionsi oni accounti ofi Tax,i bei
payablei ati maturity.i Thei Billsi arei noti redeemablei priori toi thei Maturityi Date.i Minimumi
initiali applicationi amounti (Wholesalei Investorsi only)i is$1,000,000i andi multiplesi ofi
$1,000,000i thereafter.i Minimumi purchasei amounti (wheni purchasingi ini thei secondaryi
market)i isi $10,000i andi multiplesi ofi $1,000i thereafter.i Thei Billsi arei tradedi ini thei

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secondaryi marketi oni ai yieldi toi maturityi basis.i Thisi meansi thei overalli ratei ofi returni oni
thei Billsi dependsi oni thei differencei betweeni thei pricesi paidi fori thei Billsi andi thei
Principali amounti ofi thei Bills.i Ifi purchasingi Billsi ini thei secondaryi marketi thei pricei
whichi youi payi thei Counterpartyi fori thei Billsi mayi bei equali to,i abovei ori belowi theiri
Principali amount.

Denmarki Bondi Market

Thei twoi majori sectorsi ofi thei Denmarki bondi marketi arei Governmenti Bondsi andi
Corporatei Bonds.i Thei governmenti bondi sectori isi ai broadi categoryi thati includesi
‗sovereign‘i debt,i whichi isi issuedi andi backedi byi ai centrali government.i Sovereigni
bondsi arei generallyi consideredi toi havei ai veryi lowi defaulti riski asi isi evidenti ini thei AAAi
crediti ratingi ofi Denmarki Governmenti Bonds.i Thei nexti largesti sectori ofi thei bondi
marketsi isi corporatei bonds.i Corporationsi borrowi moneyi ini thei bondi marketi toi expandi
operationsi ori fundi newi businessi ventures.i Theyi falli intoi twoi broadi categories:i
investmenti gradei andi unratedi bonds.

Governmenti bonds:

Generally,i ai governmenti bondi isi issuedi byi ai nationali governmenti andi isi denominatedi
ini thei country`si owni currency.i Bondsi issuedi byi nationali governmentsi ini foreigni
currenciesi arei normallyi referredi toi asi sovereigni bonds.

Governmentsi reflectsi inflationi expectationsi andi thei likelihoodi thati thei debti willi bei
repaid.

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Corporatei bond:

Thei Corporatei Bondi Fundi isi availablei underi thei Premiumi Investmenti Fundi range.i Thei
Manageri ofi thei Corporatei Bondi Fundi ('thei Fund')i isi BTi Fundsi Managementi (NZ)i
Limitedi ('BT').i Asi Manager,i BTi mayi employi specialisti underlyingi investmenti
managersi toi managei specifici assets.i Currently,i BTi doesi noti utilizei anyi externali
managersi fori thisi Fund.i Thei initiali investmenti isi $5,000.i Afteri this,i youi havei thei
flexibilityi toi makei regulari payments,i payi ini lumpi sums,i ori doi both.i Ini normali
circumstances,i youi cani alsoi withdrawi alli ori parti ofi youri investmenti ati anyi timei
(subjecti toi anyi applicablei minimums).

Investmenti type Minimumi investment

Lump-sumi Eurosi 5,000i minimumi balancei –i 500i peri lumpi sum.
investments
Regulari Eurosi 1,200i peri yeari –i choosei toi payi thisi weekly,i fortnightly,i
investments monthly,i ori quarterlyi (providedi youi holdi thei minimumi balancei
ofi 5,000)

Capitali marketi ofi Denmark:

Ai visioni andi growthi agendai toi promotei strongeri capitali marketsi fori alli Denmarkers.

Broaderi participationi byi Denmarkers,i greateri accessi toi growthi capitali fori Denmarki
enterprises,i andi morei choicesi fori investorsi drivei thei recommendationsi ini thei Capitali
Marketsi 2029i reporti releasedi today.i Thei reporti listsi 42i recommendationsi toi unlocki
strongeri capitali marketsi fori alli Denmarkersi ofi whichi 18i recommendationsi havei beeni
prioritized.i Thei recommendationsi canvasi topicsi suchi asi kiwii Saver,i regulation,i publici
sectori assetsi andi infrastructure,i promotioni ofi publici markets,i tax,i newi productsi andi
thei impacti ofi technology.

Thei report‘si recommendationsi arei designedi toi improvei capitali marketsi ini onei ori morei
ofi thei followingi ways:

 Raisei thei leveli ofi individuali participationi andi engagementi ini capitali markets
 Offeri morei choicei ofi investmenti fori individuals,i bothi withini kiwii Saveri andi
morei generally

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 Growi thei basei ofi companiesi thati cani accessi thei publici capitali market,i reducei
thei barriersi toi listingi wherei possiblei andi increasei motivationi fori publici
companiesi toi remaini listed
 Growi thei privatei capitali ecosystemi ini Denmark
 Usei thei capitali marketsi toi fundi infrastructurei ini Denmark
 Createi greateri wealthi fori Deni markers.

Capitali Marketsi 2029i Chairi Martini Stearnei saidi somei ofi thei changesi recommendedi toi
Kiwii Saver,i fori example,i arei focusedi oni stimulatingi morei Denmarkersi toi becomei
engagedi investors.

―Manyi ofi thei recommendationsi arei alsoi designedi toi createi largeri poolsi ofi capitali fori
fundingi Denmarki enterprises,i includingi infrastructure,i viai publici ori privatei markets.

―Additionally,i thei recommendationsi recognizei thei growingi rolei ofi privatei markets,i
andi thereforei seeki toi providei greateri accessi toi themi fori morei Denmarkers,‖i saidi Mri
Stearne.

Thei reporti alsoi summarizesi somei ofi thei keyi trendsi ini Denmarki thati couldi underminei
thei effectivenessi ofi capitali marketsi andi havei long-termi consequencesi fori thei country‘si
wealthi ifi lefti unaddressed.i Thesei include

 Ai kiwisi averi regimei thati encouragesi saving,i buti fostersi investmenti

predominantlyi ini loweri growthi assetsi andi hasi limitedi exposurei toi privatei
markets
 Ai largei numberi ofi Denmarkersi whoi arei noti activelyi participatingi ini kiwii Saver
 Ai two-tieri publici marketi thati isi workingi welli fori thei largeri companies,i buti isi
lessi liquidi andi effectivei fori smalleri companies
 Ai publici marketi thati isi strugglingi toi attracti newi listings
 Privatei marketsi thati arei workingi welli andi growing,i buti noti necessarilyi servingi
thei fulli rangei ofi Denmarki investors,i nori thei fulli rangei ofi investmenti stages
 Ai soundi regulatoryi regime,i albeiti withi areasi whichi couldi bei improvedi toi assisti
thei flowi ofi capital.

Thei review,i sponsoredi byi NZXi andi thei Financiali Marketsi Authority,i andi reporti
producedi byi EYi asi secretariat,i involvedi manyi peoplei andi organizationsi acrossi
Denmark,i asi welli asi offshorei investors.
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―Wei believei thisi reporti isi ai mandatei fromi thei industryi fori thei recommendationsi whichi
arei aimedi ati seeingi morei capitali flowingi morei efficientlyi toi Denmarki enterprises,i asi
welli asi providingi morei investmenti opportunitiesi fori ai greateri numberi ofi Kiwii
investors,‖i saidi Mri Stearne.

―Thei steeringi committeei tooki ai 10-yeari viewi asi iti identifiedi practicali waysi ofi
addressingi thesei issues.

―Therei isi ai loti ofi researchi andi evidencei ofi thei rolei successfuli capitali marketsi fulfili ini
benefitingi Denmarkers,i byi wayi ofi employment,i usei ofi thei productsi andi servicesi ofi
companiesi fundedi byi capitali markets,i ori byi directi ori indirecti investment.‖

Mri Stearnei saidi thati nexti stepsi willi includei formali responsesi fromi NZXi andi FMA,i asi
welli asi fromi certaini otheri partiesi toi whomi recommendationsi havei beeni made.i NZXi
hasi offeredi toi reporti oni thei progressi madei byi alli partiesi ini implementingi thei
recommendations,i withi ai firsti assessmenti ini 18i months.

―Thei industryi hasi identifiedi thesei changesi andi isi readyi andi willingi toi followi throughi
withi actioni ini orderi toi achievei thei visioni andi ambitionsi fori strongeri capitali marketsi
fori alli Deni markers,i asi outlinedi ini thei report.‖

Internationalization
Sincei 1982,i thei Danishi moneyi andi financiali marketsi havei undergonei ani
internationalizationi processi andi todayi filli EUi requirementsi fori thei freei movementi ofi
capitali andi cross-borderi tradei ini financiali services.i Onei ofi thei maini featuresi ofi thei
Danishi financiali marketi isi ai veryi largei bondi market,i relativei toi thei sizei ofi thei country,i
resultingi fromi ani unusuallyi widespreadi issuancei ofi mortgagei crediti bonds.i Thei
structurei ofi thisi marketi isi describedi below.

Thei Centrali Bank

Thei Nationali Banki ofi Denmarki isi ai self-governingi institution,i thei objectivei ofi whichi
isi toi maintaini ai securei monetaryi systemi andi toi facilitatei andi controli thei circulationi ofi
moneyi andi lendingi activitiesi ini thei country.i Thei centrali banki isi responsiblei fori Danishi
monetaryi policy,i thei tacticali managementi ofi publici debti andi foreigni exchangei
reserves,i asi welli asi thei issuancei ofi banknotesi andi coins.

Banks

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Danishi banksi havei becomei increasinglyi concentratedi ini recenti decades.i Thei numberi
ofi banksi reachedi itsi peaki ini thei 1950s,i withi aroundi 160i commerciali banksi andi 475i
savingsi banks.i Sincei thei mid-1980s,i theiri numberi hasi droppedi sharply;i ini 1989,i sixi ofi
thei largesti banksi mergedi intoi twoi largei commerciali banks,i Danskei Banki andi Unibank.i
Thei mosti recenti majori mergersi havei beeni thei mergeri ofi Danskei Banksi withi BGi Bank,i
thei thirdi largesti banki ini Denmark,i andi Uni-banki withi thei Finnish-Swedishi banki
Meritai Nordbanki toi formi Nordea.i Bothi tooki placei ini 2001

Ati thei endi ofi 2004,i Denmarki hadi 161i banks.i Thei Danishi bankingi sectori usesi state-of-
the-arti technology,i asi evidencedi byi thei servicesi iti offersi bothi oni thei domestici marketi
andi abroad.i Denmarki hasi alwaysi beeni dependenti oni foreigni trade,i andi thei commerciali
policiesi ofi itsi banksi havei thereforei beeni orientedi internationally.

Fouri Danishi banksi havei branchesi abroadi andi ai numberi ofi foreigni banksi arei directlyi
representedi ini Denmarki ori havei announcedi cross-borderi servicei plansi here.i Bankingi
activitiesi arei regulatedi byi thei Danishi Bankingi Lawi andi banksi operatei underi thei
supervisioni ofi thei Danishi Financiali Supervisoryi Authority,i whichi isi ai branchi ofi thei
Ministryi ofi Businessi andi Industry.

Insurancei Companies
Ini 2005,i aroundi 237i insurancei companiesi werei activei ini Denmark.i 124i werei non-lifei
companies,i 36i werei lifei insurancei companiesi andi 73i werei pensioni funds.i Likei thei
bankingi sector,i thei insurancei sectori hasi becomei veryi concentratedi ini recenti yearsi duei
toi mergersi andi acquisitions,i fori examplei thei acquisitioni ofi Codan‘si Hafnia,i thei
acquisitioni ofi Trygi byi Baltica,i thei acquisitioni ofi Danicai byi Danskei Banki andi thei
acquisitioni ofi Tryg-Balticai byi Unibank.

Thei Mortgagei Crediti System

Thei Danishi mortgagei systemi hasi ai longi history.i Mortgagei lendingi institutionsi providei
securedi loansi oni reali estatei andi financei thesei loansi throughi bondi issues.i Mosti reali
estatei ini Denmarki isi financedi byi mortgages.i Previously,i mortgagei lendersi werei
mutuali (ownedi byi borrowers),i buti havei recentlyi beeni convertedi toi limitedi liabilityi
companies.i Therei arei currentlyi eighti mortgagei lendersi ini Denmark,i threei ofi whichi arei
ownedi byi banks.i Thei fivei largesti mortgagei crediti institutionsi are:i BRFi credit,i Nordeai
credit,i Nyi credit,i Denmarki reali crediti andi totali credit

Date 4/10/2020
13

Thei Copenhageni Stocki Exchange

Overi thei years,i thei largei numberi ofi bondsi outstandingi hasi helpedi createi ani efficienti
marketi ini Denmark,i andi thei Copenhageni Stocki Exchangei isi nowi ai fullyi modernizedi
marketi fori stocksi andi bonds.i Transactionsi arei settledi byi thei Danishi Securitiesi Center,i
whichi wasi establishedi ini 1983,i andi optionsi andi futuresi havei beeni tradedi oni thei stocki
exchangei sincei 1988.i Ini 1996,i thei Copenhageni Stocki Exchangei wasi convertedi fromi ai
privatei foundationi toi ai publici limitedi company.i Sixtyi percenti ofi sharei capitali hasi beeni
distributedi toi membersi andi 20i percenti distributedi toi issuersi ofi stocksi andi bonds.

Discussion of the stock exchange of the country:

i i i i i i i

Thei Copenhageni Stocki Exchangei servesi asi Denmark'si officiali marketi fori securities.i
Thei CSEi becamei ai limitedi companyi ini 1996i andi listsi shares,i fixedi incomei
instruments,i andi derivatives.i Thei exchangei usesi ani electronici orderingi systemi toi
facilitatei efficienti orderi matching.i Thei Copenhageni Stocki Exchangei isi ai memberi ofi
thei OMXi Exchangei group,i whichi isi nowi parti ofi Nasdaqi andi isi madei upi ofi thei
Copenhagen,i Stockholm,i Helsinki,i andi Icelandi exchangesi Thei CSEi managesi thei C20,i
ai stocki indexi containingi 20i ofi thei exchange'si bluei chipi companies.i Investorsi cani buyi
ori selli futuresi andi optionsi withi thei C20i Indexi asi thei underlyingi asset.

Thei Copenhageni Stocki Exchange,i officiallyi calledi Nasdaqi Copenhagen,i isi thei maini
stocki exchangei ofi Danmark.i Iti isi onei ofi eighti stocki exchangesi thati belongi toi Nasdaqi
Nordic,i whichi isi ai subsidiaryi ofi Nasdaqi thati operatesi stocki exchangesi ini severali
Nordici andi Baltici countriesi andi providesi accessi toi 80%i ofi thei Nordici andi Baltici
securitiesi market.i Tradingi isi supportedi byi ai tradingi platformi calledi INETi Nordic.i Thei
Copenhageni Stocki Exchangei isi headquarteredi ini Copenhagen,i Denmark`si capital,i
mosti populousi cityi andi economici center.i Iti listsi 156i companiesi withi ai marketi capi ofi
DKKi 2,900i billion.i Thei exchangei alsoi housesi bondsi andi derivatives.i Amongi thei
listingsi arei well-knowni andi activelyi tradedi companiesi suchi asi Danskei Bank,i thei
Carlsbergi Group,i Maersk,i Novoi Nordiski andi thei TDCi Group.i Thei exchangei managesi
thei OMXi Copenhageni 25i Index,i ai marketi valuei weighted,i freei floati adjustedi andi
cappedi indexi thati tracksi thei performancei ofi thei 25i largesti andi mosti tradedi stocks.i Iti isi
widelyi seeni asi thei benchmarki indexi fori thei Danishi stocki market.i Thei constituentsi arei
screenedi fori eligibilityi andi reviewedi semi-annually.i Thei exchangei alsoi operatesi ani alli

Date 4/10/2020
14

sharei index,i indicesi fori companiesi ofi differenti capitalizationi sizesi andi severali sectori
andi industryi indices.

Thei C25i Index,i ai weighted,i marketi valuei indexi comprisingi 20i Danishi bluei chips,i
launchedi fori futuresi andi optionsi tradingi (membersi includei thei A.P.i Moller-Maerski
Group).i Thei KFXi Indexi comprisesi growthi companiesi ini thei medical, i
telecommunications,i biotechnology,i andi informationi technologyi sectorsi oni thei
exchangesi KVXi Growthi Market.i Thei KAXi Indexi isi thei exchange'si all-sharei index,i
introducedi ini 2001i toi replacei thei previousi all-sharei index.i Iti conformsi toi thei Globali
Industryi Classificationi Standardi developedi byi Morgani Stanleyi Deani Witteri andi
Standardi &i Poor's.

Introduction to the financial system of the country:

i i i i i i i

Thei moneyi relatedi frameworki assumesi ai significanti jobi ini thei economy,i withi threei
essentiali assignments

 Providing purchasers and organizations with acquiring and sparing chances

i i i i i i i i

 giving installment administrations

i i

 Risk the board in a well-working budgetary framework, these undertakings are

i i i i i i i i i i i

performedi safelyi andi proficiently.

Ai frameworki thati isi flexiblei toi stunsi lessensi thei likelihoodi ofi moneyi relatedi
emergencies.i Thei moneyi relatedi frameworki comprisesi ofi ai widei rangei ofi
establishments,i markets,i i monetaryi marketi foundations.i Righti now,i thei budgetaryi
frameworki isi isolatedi intoi moneyi relatedi markets,i monetaryi establishmentsi andi
monetaryi foundation.i Thei clientsi ofi thei frameworki are,i generally,i thei citizenry:i

Date 4/10/2020
15

organizations,i openi endeavorsi andi practicallyi alli people.i Ai morei extensivei meaningi ofi
thei budgetaryi frameworki mayi incorporatei differenti capacities.i Thesei mighti bei
establishmentsi andi instrumentsi thati givei securityi toi getsi thati arei gonei intoi andi thati
guaranteei tenablei datai fori powerfuli crediti intermediationi andi hazardi thei board.i
Outlinei 1i showsi ai disentangledi graphi ofi thei budgetaryi framework.i Shoppers,i
organizationsi andi differenti endeavorsi withi investmenti fundsi havei hoveredi ati thei top.i
Customers,i organizationsi andi differenti endeavorsi asi borrowersi havei hoveredi ati thei
base.i Thei monetaryi framework,i wherei reservei fundsi arei directedi intoi venturei throughi
businessi sectorsi andi endeavors,i isi ini thei chart.i Practicallyi speaking,i thei membersi arei
commonlyi thei twoi saversi andi borrowers.i Banksi makei cashi wheni theyi issuei anotheri
crediti toi ai clienti (seei enclosei Creatingi cashi Sectioni 2).i Installmentsi andi hazardi thei
executivesi likewisei fundamentallyi happeni ini thei moneyi relatedi framework.i Thei
moneyi relatedi frameworki makesi everyi onei ofi thesei exchangesi conceivable.

Thei primaryi tasksi ofi thei financiali system:

Ai greati manyi peoplei needi toi obtaini cash.i Privatei peoplei geti toi backi ai training,i ai housei
buyi ori spendingi oni enormousi utilizationi thingsi ori toi coveri ai briefi decreasei ini pay.i Soi
also,i ai greati manyi peoplei needi toi storei theiri cashi oni occasioni wheni salaryi surpassesi
consumption,i iei toi spare.i Fori instance,i shoppersi mayi sparei soi asi toi addi toi ani annuityi
conspire,i toi havei ai savei fori unexpectedi costsi ori toi havei enoughi valuei toi buyi ai home.i
Thei moneyi relatedi frameworki empowersi privatei peoplei toi acquirei andi sparei andi ini
thisi manneri toi spreadi theiri utilizationi overi ai lifei expectancyi independenti ofi wheni
Date 4/10/2020
16

salaryi isi gatheredi (Charti 2).i Organizationsi cani obtaini toi fundi interestsi ini property,i
hardware,i advancementi andi creationi toi overseei installmenti commitmentsi ini unfruitfuli
periods.i Ini productivei periodsi organizationsi needi venturei openingsi soi asi toi bei betteri
outfittedi toi managei morei slenderi occasionsi ori overseei currenti installmenti
commitmentsi andi accounti futurei speculation.i Thei budgetaryi frameworki isi expectedi toi
channeli reservei fundsi toi beneficiali venturei ventures.i Focali andi nearbyi governmentsi
cani likewisei geti toi financei speculationi andi significanti consumptioni duringi ai monetaryi
downturn.

Providingi paymenti services

Thei majorityi ofi usi makei installmentsi everyi day.i Wei takei carei ofi ouri tabsi utilizingi ani
oni thei webi ori versatilei financiali assistancei andi payi fori merchandisei ini shops.i Wei cani
payi toi utilizei moneyi ori utilizingi banki stores,i alludedi toi asi storei cash.i Denmarki Banki
issuesi moneyi dependenti oni clienti request.i Storei cashi cani bei utilizedi fori makingi
installmentsi utilizing,i fori instance,i ai web-basedi financiali help,i installmenti cardsi ori ai
celli phone.i Ini ai tradei economy,i thei twoi membersi ofi exchangei musti concuri uponi ai
modei ofi trade.i Ini ai financiali economy,i therei isi ani all-aroundi recognizedi vehiclei ofi
trade,i cash.i Cashi cani bei asi banknotesi ori coinsi thati arei commonlyi recognizedi becausei
theyi arei characterizedi byi lawi asi legitimatei delicate.i Bei thati asi iti may,i cashi cani
likewisei bei asi storei cash,i whichi isi commonlyi recognizedi toi thei degreei iti veryi welli
mayi bei pulledi backi asi banknotesi andi coinsi ini ai similari sum.i Mosti exchangesi ini thei
economyi arei settledi utilizingi storei cash.i Fori storei cashi toi bei commonlyi recognized,i
trusti ini thei financiali frameworki isi vital.i Therei arei ani enormousi numberi ofi banksi andi ai
highi numberi ofi installmenti exchanges,i includingi interbanki exchanges.i Exchangesi
utilizingi storei cashi musti bei settled.

Date 4/10/2020
17

Riski management
Bothi privatei peoplei andi organizationsi needi toi guaranteei themselvesi againsti chance.i
Fire,i burglaryi andi collisioni protection,i fori instance,i cani bei boughti fromi ai non-extrai
securityi undertaking.i Disasteri protectioni organizationsi andi benefitsi subsidizei selli
protectioni thati ensuresi installmenti ini casei ofi inabilityi ori unexpectedi passingi ofi thei
guaranteed.i Theyi additionallyi offeri individuali privatei annuitiesi andi gatheringi wordi
relatedi benefitsi asi ani enhancementi toi statei benefitsi fromi thei Nationali Insurancei
Scheme.i Organizationsi mayi likewisei looki fori protectioni againsti differenti monetaryi
dangersi relatedi toi theiri exercises.i Therei mighti bei dangersi relatedi toi thei futurei costsi ofi
bothi middlesi ofi thei roadi merchandisei andi thei lasti items.i Conversioni standardi hazardi
andi thei dangeri ofi ani adjustmenti ini financingi costsi arei differenti models.i Organizationsi
cani dispensei withi ori relievei suchi dangersi byi methodsi fori budgetaryi instrumentsi andi
subordinates.i Thei dealersi ofi subordinatesi cani guaranteei against,i ori fence,i i hazardi byi
offeringi subsidiariesi agreementsi toi purchasersi withi inversei needs,i spreadi hazardi byi
owningi thei basici instrumentsi ori exchangei hazardi toi otheri people.

Financiali trends
Thei installmenti frameworki isi quicklyi advancing.i Advancesi arei beingi innovative,i newi
suppliersi andi newi guidelines.i Asi ofi late,i variousi nationsi havei propelledi answersi fori
quicki installments.i Ini Denmarki iti isi likewisei feasiblei fori retaili clientsi ofi variousi banksi
toi makei quicki installmentsi toi eachi other.i Ai teami willi createi andi actualizei ai typicali
foundationi fori savesi moneyi withi thei abilityi toi deali withi ai futurei incrementi ini thei
utilizationi ofi quickeri installments.i Mosti installmentsi arei madei electronically.i Celli

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18

phonei installmenti applications,i likewisei calledi computerizedi wallets,i havei gotteni

extremelyi famousi ini Denmarki overi thei previousi year,i especiallyi fori individuali toi
individuali (P2P)i installments.i Thei portioni ofi thei moneyi asi ai portioni ofi methodsi fori
installmenti utilizedi byi thei openi keepsi oni declining,i whilei thei portioni ofi storei cashi isi
rising.i danishi Banki willi examinei howi thei effectivenessi ofi thei Norwegiani installmenti
frameworki wouldi bei influencedi byi ai reductioni ini thei utilizationi ofi money,i andi
whetheri electronici nationali banki cashi cani givei wantedi propertiesi toi thei installmenti
framework.

Risksi ini thei financiali system

Thei financiali systemi contributesi toi morei effectivei riski managementi ini thei economy.i
Onei elementi ofi riski managementi isi identifyingi thei naturei ofi ai riski andi howi iti cani bei
prevented.i Pricingi ofi riski isi ani importanti parti ofi thisi work.i Therei arei differenti kindsi ofi
risk:i

Credit i riski isi thei riski ofi lossesi wheni ai counterpartyi cannoti settlei itsi accounts.i Fori
example,i thei counterpartyi mayi bei thei issueri ofi ai security,i ai counterpartyi ini ai
derivativei contracti ori ai borroweri withi ai banki loan.i Fori corporatei loans,i crediti riski cani
bei associatedi withi ai sectori (fori examplei construction)i ori withi individuali borrowers.i

Liquidityi riski isi thei riski thati ani undertakingi cannoti meeti itsi paymenti obligationsi
wheni duei withouti incurringi substantiali additionali costs.i Liquidityi riski arisesi fromi thei
differencei ini termsi toi maturityi betweeni banks‘i assetsi andi liabilities.i Depositsi ini banksi
arei typicallyi open-endedi withi noi priori noticei ofi terminationi required,i whilei banki loansi
havei longeri maturities.i Liquidityi riski isi alsoi usedi toi referi toi thei riski ofi pricesi beingi
influencedi wheni securitiesi ori otheri assetsi arei tradedi andi isi theni referredi toi asi marketi
liquidityi risk.i

Marketi riski isi ai collectivei termi fori thei riski ofi lossesi duei toi movementsi ini marketi
pricesi suchi asi interesti rates,i exchangei rates,i commodityi pricesi ori sharei prices.i Thesei
typesi ofi riski arei ofteni referredi toi asi interesti ratei risk,i foreigni exchangei risk,i
commodityi pricei risk,i equityi risk.i Operationali riski isi associatedi withi technicali
malfunctions,i humani errori andi inadequatei controli systems,i suchi asi faultyi procedures,i
errorsi ini ori attacksi oni ITi systems,i regulatoryi violations,i fraud,i fire,i terrori attacks.

Date 4/10/2020
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Operationali riski cani causei ori amplifyi otheri kindsi ofi risk.i Legali riski cani bei definedi asi
thei riski ofi lossesi wheni ai contracti cannoti bei enforcedi asi planned,i ori becausei collaterali
cannoti bei realizedi asi envisaged.

Legali riski cani arisei ini internationali businessi transactionsi asi ai legali basisi ofteni variesi
acrossi countries.i Ifi onei ori morei ofi thesei risksi reachesi ai highi enoughi level,i thei
efficiencyi andi securityi ofi thei financiali systemi mayi bei jeopardized,i i.e.i systemici risk.i
Thei Europeani Systemici Riski Boardi (ESRB)i definesi systemici riski asi thei riski ofi
disruptioni ini thei financiali systemi withi thei potentiali toi havei seriousi negativei
consequencesi fori thei reali economyi (seei thei recommendationsi fromi thei ESRBi ofi 4i
Aprili 2013).i Systemici riski cani varyi overi timei ori bei ai morei structurali nature.

Financial instruments used in the country:

i i i i i

 Monitoryi policy
 Fiscali policy
 Bonds

Monetaryi policy
Thei objectivei ofi financiali strategyi asi directedi byi Denmarki Banki isi toi keepi upi lowi andi
stablei expansion.i Thei operationali objectivei ofi financiali strategyi isi unequivocallyi
characterizedi ini ai purchaseri valuei expansioni pacei ofi roughlyi 2.5i percenti afteri somei
time.i Denmarki Banki setsi itsi loani costi instrumenti withi thei endi goali ofi accomplishingi
thei swellingi objectivei overi ai two-yeari skyline,i andi iti willi regularlyi endurei deviationsi
ofi reali expansioni fromi focusi oni thati arei noti ini overabundancei ofi givei ori takei 1i ratei
point.i Asi ai rule,i thei immediatei impactsi oni customeri costsi comingi abouti becausei ofi
changesi ini financingi costs,i charges,i extracti obligations,i andi uncommoni transitoryi
conditionsi willi noti bei considered.i Thei expansioni targeti wasi presentedi ini Marchi 2001,i
afteri ai longi conventioni ofi conversioni scalei focusingi on.i Subsequenti toi relinquishingi ai
fixed-ratei systemi ini 1992,i Denmarki Banki ledi ani oversawi buoyi ofi thei krone,i withi noi
unequivocali stipulationi ofi ai focali ratei andi vacillationi edges.i Denmarki Banki hadi noi
commitmenti toi intercedei ini thei outsidei tradei showcase,i ini anyi case,i ini casei ofi criticali
changesi ini thei swappingi scale,i thei Banki wouldi situatei itsi instrumentsi withi thei endi
goali ofi restoringi thei conversioni standardi afteri somei timei toi itsi underlyingi extent.i

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20

Practicallyi speaking,i thisi impliedi Denmarki Banki directedi financiali approachi withi thei
pointi ofi bringingi expansioni towardi thei degreei ofi otheri Europeani exchangingi
accomplices.i Accordingly,i thei transitioni toi ani expressi swellingi objectivei didn'ti geti
criticali changesi thei leadi ofi financiali arrangement.

Denmarki Bank’si Maini Monetaryi Policyi Instruments:

Whilei ini numerousi differenti nationsi thei nationali banki setsi thei loani costi oni liquidityi
providedi throughi openi marketi activitiesi andi alongi thesei linesi flagsi thei marketi ratei iti
regardsi proper,i Denmarki Banki hasi choseni noti toi flagi financingi costsi righti now.i Thei
strategyi ratesi arei ini actualityi thei ratesi oni Denmarki Bank'si standingi offices,i thati is,i
banks'i financingi costi immediatelyi storesi ini Denmarki Banki (storei rate)i andi thei loani feei
oni medium-termi advancesi toi banksi (medium-termi loaningi rate).i Thei storei ratei andi thei
medium-termi loaningi ratei structurei ai passagei fori thei mosti limitedi currencyi showcasei
rates.i Thei contrasti betweeni thei medium-termi loaningi ratei andi thei sighti storei ratei isi
kepti ati 2i ratei focusesi oni ai yearlyi premise.i Asi ofi latei Denmarki Banki hasi providedi
liquidityi ini ai manneri toi suchi ani extenti thati thei financiali frameworki alli ini alli hasi sighti
storesi withi thei focali bank.1i Thus,i thei sighti storei ratei isi thei financiali framework'si
negligiblei ratei andi thei keyi approachi ratei ini thei Bank'si leadi ofi fiscali arrangement.i Ini
ordinaryi occasions,i currencyi showcasei ratesi willi bei neari thei commoni sighti storei rate.i
Iti is,i asi referenced,i thei swellingi standpointi twoi yearsi aheadi thati decidesi thei sighti storei
ratei seti byi Denmarki Bank.i Ini ordinaryi occasions,i thei Banki adoptsi ai gradualisti strategyi
whilei changingi thei arrangementi rate.

Standingi Facilities:

Banksi cani naturallyi storei anyi accessiblei liquidityi insidei Denmarki Bank,i whichi isi
compensatedi ati thei postedi sighti storei rate.i Banksi cani likewisei acquirei liquidityi duringi
thei dayi andi medium-termi fromi Denmarki Bank.i Noi intriguei ori expensesi arei chargedi
oni intradayi credits,i whilei medium-termi advancesi conveyi ai loani feei (thei medium-termi
loaningi rate)i whichi is,i asi referenced,i 2i ratei focusesi overi thei postedi sighti storei rate.i
Accessi toi thei intradayi andi medium-termi loaningi officei isi programmed,i andi sincei Junei
2001i Denmarki Banki hasi stoppedi toi seti semi-monthi toi monthi alli outi drawingi limitsi fori
medium-termi advances.i Fori bothi intradayi andi medium-termi credits,i fori thei mosti parti
alludedi toi asi D-advances,i banksi musti posti guaranteei ini ai sumi comparablei toi 100i
percenti ofi thei advance.i Thei qualifiedi guaranteei fori D-creditsi isi indistinguishablei fromi

Date 4/10/2020
21

thei insurancei Denmarki Banki requiresi fori advancesi thei Banki issuesi ini openi marketi
activitiesi (F-advances),i depictedi beneath.i Denmarki Banki additionallyi hasi ani
uncommoni intradayi gettingi office,i acquaintedi withi accommodatei thei executioni ofi
uniquei installmenti settlementsi determinedi byi Denmarki Bank.i Noi insurancei isi requiredi
fori suchi advances,i alludedi toi asi E-credits,i howeveri ani expensei isi chargedi toi stopi
banksi fromi drawingi oni thisi office.

Openi Marketi Operations:

Denmarki Banki targetsi keepingi upi ai steadyi stockpilei ofi liquidityi ini thei financiali
framework.i Ini particular,i thei Banki guaranteesi thati thei financiali frameworki hasi sighti
storesi ini Denmarki Banki ofi ai sizei adequatei toi keepi thei mosti limitedi currencyi advertisei
ratesi downi towardi thei sighti storei rate.i Sincei thei focali government'si workingi recordi isi
ini thei nationali bank,i thei liquidityi positioni ofi banksi cani changei quickly,i makingi iti vitali
fori thei Banki toi intercedei everyi nowi andi againi ini thei market.i Thei principlei instrumentsi
fori currencyi showcasei tasksi arei fixed-ratei advancesi (F-advances)i thati Denmarki Banki
issuesi againsti guaranteei wheni thei financiali frameworki hasi ai liquidityi deficiency.i Thei
ratesi oni F-creditsi arei seti byi selli off.i Asi ofi Septemberi 1999,i F-advancesi conveyi ai 100i
percenti securityi necessity.i Thei 100i percenti insurancei prerequisitei oni F-creditsi wasi thei
zenithi ofi 10i yearsi ini lengthi procedurei ofi slowi reintroductioni ofi thei rulei ofi fulli
guaranteei fori advancesi allowedi byi Denmarki Bank.4i Financiali insecurityi ini thei latei
1980si wasi liablei fori thei inversioni ini Denmarki Bank'si dispositioni towardi makingi surei
abouti thei liquidityi providedi toi thei currencyi showcase.i Upi toi thati point,i thei insurancei
necessityi hadi experiencedi ai procedurei ofi progressivei unwinding.i Denmarki Banki
previouslyi permittedi accessi toi itsi loaningi officei toi savesi moneyi withi protectionsi ini
theiri portfoliosi howeveri didn'ti requirei thei protectionsi toi bei stored.i Ati thati point,i ini
1986,i thei securityi prerequisitei wasi insidei andi outi expelledi fromi thei guideline.i Thei
presentationi ofi 100i percenti guaranteei oni Floansi ini 1999i isi legitimatelyi connectedi toi
thei fruitlessi experiencei ofi thei repoi office.

Eligiblei Collateral:

F-advances,i D-credits,i andi reportsi havei indistinguishablei qualifiedi security.i Asi Tablei
1i shows,i soi toi guaranteei thati thei frameworki capacitiesi ini ani agreeablei way,i thei choicei
ofi qualifiedi protectionsi isi expansive.i Thei littlei sizei ofi thei Norwegiani governmenti
securityi advertisementi isi thei primaryi purposei behindi thei widei determinationi ofi

Date 4/10/2020
22

qualifiedi insurance.i Denmarki Banki hasi builti upi ai ratingi frameworki fori thei protectionsi
utilizedi asi insurancei fori advancesi ini Denmarki Bank.i Rulesi fori ai decreasei ini ai
security'si guaranteei esteemi dependi oni thei ratingi thei securityi getsi regardingi itsi
financingi costi hazard,i crediti hazard,i andi cashi chance.i Crediti chancei isi viewedi asi zeroi
fori governmenti andi governmenti ensuredi backersi ini OECDi parti states.i Higheri sawi
crediti chancei fori thei backeri willi bringi abouti morei noteworthyi decreasesi toi insurancei
esteem.i Alli protectionsi cashi otheri thani danishi kroneri willi bei dependenti uponi ai
decreasei fori moneyi chance.i Asi Tablei 1i shows,i thei decreasesi arei appliedi toi thei
ostensiblei estimationi ofi security.i Sooneri ratheri thani later,i Denmarki Banki expectsi toi
movei toi ani imprinti to-advertisei estimatingi ofi guarantee,i ini orderi toi improvei thei
harmonyi betweeni thei insurancei outfittedi andi thei reali hazardi accepted.

Investment i ofi Assets

Towardi thei finishi ofi 2000,i thei marketi estimationi ofi Denmarki Bank'si neti outsidei tradei
savesi (lessi remotei liabilitiesi andi neti remotei tradei soldi forward)i wasi 168i billioni
Norwegiani kroner,i whichi isi righti aroundi 60i percenti ofi thei Bank'si absolutei assets.8i
Foreigni tradei savesi arei partitionedi intoi fouri sub-portfolios:i ani inoculationi portfolioi toi
coordinatei governmenti remotei moneyi obligationi andi killi thei cashi andi loani feei hazardi
relatedi withi thisi obligation;i ai supporti portfolioi fori thei Governmenti Petroleumi Fund,i toi
collecti remotei cashi buysi fori movesi toi thei Fundi ati ordinaryi interims;i ai liquidityi
portfolio,i toi bei utilizedi ini thei outsidei tradei advertisei regardingi thei leadi ofi fiscali
arrangement;i andi ai longi hauli portfolio,i whichi isi toi bei accessiblei fori mediations,i
howeveri toi bei contributedi withi ai viewi towardi accomplishingi ani exceptionali yieldi ini
thei longi haul.

Fiscali policy:

Denmark'si 78pci assessmenti ratei oni payi fromi hydrocarboni creationi isi steepi byi globali
models.i Ini anyi case,i thei nationi hasi constantlyi focusedi oni thei steadinessi ofi itsi
monetaryi systemi andi itsi equalizationi andi nonpartisanship—wherei thei administrationi
sharesi ai loti ofi thei hazardi asi ai byproducti ofi itsi largei interpretationi ofi thei prizei andi thei
drill/no-drilli choicei aren'ti affectedi byi chargei worriesi asi alluringi toi travelers.i Thati
dependabilityi andi lacki ofi biasi isi currentlyi goingi underi expandedi strain.i Toi ai limitedi
extent,i thei weighti isi fromi ani increasinglyi forcefuli Norwegiani ecologicali hall,i whichi isi
focusingi oni expliciti componentsi ofi thei dutyi codei toi encouragei itsi plani ofi diminishingi

Date 4/10/2020
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actioni oni thei Norwegiani mainlandi racki (NCS).i Bei thati asi iti may,i componentsi insidei
thei fundi service,i whichi contendi fori ai loweri neti presenti worthi (NPV)i markdowni ratei
andi ani ensuingi loweri pacei ofi elevatingi remittance,i additionallyi representi ai hazard.i
Mosti Norwegiansi stayi contenti withi expandingi oni thei nation'si basei ofi broadi hydro-
electrici forcei agei toi seeki afteri ai greeni locali plan,i includingi probablyi thei mosti yearningi
targetsi comprehensivelyi fori electrici vehicles.i Ati thei samei time,i Denmarki keepsi oni
gettingi ai chargei outi ofi thei monetaryi advantagesi accumulatingi fromi itsi hugei scopei
hydrocarboni sendsi out.

Bonds

Thei legislaturei getsi ini thei obligationi showcasei byi givingi Treasuryi billsi andi
governmenti bonds.i Treasuryi billsi havei ai developmenti ofi asi longi asi onei yeari andi arei
giveni asi zero-couponi notes.i Governmenti securitiesi havei ai uniquei developmenti ofi overi
onei year,i bearingi ai fixed-ratei couponi paidi oncei peri year.i Alli Treasuryi billsi andi
governmenti bondsi arei giveni ini NOKi andi arei recordedi oni thei Osloi Stocki Exchange.i

Thei administrationi acquiringi systemi isi characterizedi ati quarterlyi gatheringsi withi thei
Ministryi ofi Finance.i Ani officiali conclusioni isi madei byi thei Ministryi ofi Finance.i

dansihi governmenti obligationi isi giveni byi closeouti oni thei Osloi Stocki Exchange.i Thei
advancei volumei andi thei crediti arrangementi wherei iti isi toi bei giveni arei reportedi threei
businessi daysi beforei thei sale.i Speculatorsi cani buyi governmenti protectionsi byi
submittingi offersi toi onei ofi thei banksi thati hasi gonei intoi ani essentiali vendori
concurrencei withi thei legislature.i Thei principlei capacityi ofi essentiali sellersi isi toi
advancei liquidityi ini thei Norwegiani governmenti protectionsi showcasei byi providingi
offeri andi offeri costi estimatesi fori everyi administrationi securityi oni thei Osloi Stocki
Exchange.

Foreign exchange market in the country:

i i i i i

Thei foreign-exchangei marketi isi ai marketi fori purchasei andi salei ofi foreigni exchangei
againsti Danishi kroner.i Capitali flowsi andi foreigni tradei arei thei principali factorsi
creatingi thei needi fori thisi market,i ini whichi exchange-ratei risksi arei hedgedi andi
conversioni betweeni kroneri andi foreigni currencyi takesi place.i Sincei thei kronei ratei isi
formedi ini thei foreign-exhangei marketi thei latteri playsi ai centrali rolei ini thei monetaryi
andi foreign-exchangei policy.i Denmarki hasi noi moneyi limitations.i Remotei tradei

Date 4/10/2020
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controlsi werei annulledi ini 1990.i Noi permittingi necessitiesi arei ini power.i Thei maini
prerequisitei isi ani announcingi necessityi fori universali installmentsi andi moneyi relatedi
exchanges.i Thei exchangei banki byi andi largei dealsi withi thisi announcing.i Thei
Governmenti hasi characterizedi ani expansioni focusi fori financiali arrangementi ini
Denmark.i Thei operationali objectivei isi customeri valuei expansioni ofi neari 2.5%i afteri
somei time.i Fiscali arrangementi willi likewisei addi toi balancingi outi yieldi andi work.i Thei
loani feei oni banks'i storesi withi thei Centrali Banki ofi Denmarki (thei sighti storei rate)i isi thei
mosti significanti moneyi relatedi arrangementi instrument.

Date 4/10/2020
25

Thei participantsi cani generallyi bei dividedi intoi twoi maini categories:i customersi andi
foreign-exchangei dealers.

 Customersi arei typicallyi privatei businessi enterprisesi withi ai needi toi purchasei
andi selli foreigni exchangei ini connectioni withi paymentsi toi andi fromi abroad.i
Locali governmentsi andi publici enterprisesi whichi alsoi havei ai numberi ofi largei
paymentsi toi andi fromi abroadi arei alsoi included.i Finally,i smalli banksi whichi doi
noti havei veryi muchi businessi involvingi foreign-exchangei transactionsi willi
placei theiri foreign-exchangei ordersi withi largeri banks,i thusi playingi thei rolei ofi
customeri ini thei foreign-exchangei market.
 Foreign-exchangei dealersi arei banksi whichi buyi andi selli foreigni exchangei ini
orderi toi fulfilli theiri customers'i requirements,i asi welli asi toi hedgei theiri owni
positionsi andi toi makei ai profiti oni thei margini betweeni bidi andi offeri rates.i
Previouslyi ai banki wasi requiredi toi bei ani authorizedi foreigni exchangei dealeri ini
orderi toi tradei ini foreigni exchange,i buti today'si marketi isi fullyi liberalizedi andi
alli banksi havei directi accessi toi tradei foreigni exchangei ini thei market.i However,i
toi bei ai foreign-exchangei dealeri ai networki ofi correspondenti banksi isi required.
 Thei Nationali banki mayi alsoi bei termedi ai foreign-exchangei dealer.i Likei otheri
foreign-exchangei dealersi thei Nationali banki carriesi outi paymentsi oni behalfi ofi
itsi customers,i i.e.i thei externali paymentsi ofi thei centrali governmenti andi thei
Kingdomi ofi Denmarki Mortgagei Bank.i Asi ai generali rulei thei Nationali banki
hedgesi thesei paymentsi ini thei foreign-exchangei marketi viai thei Danishi banks.

Productsi tradedi ini thei Danishi foreign-exchangei market

Thei Danishi foreign-exchangei marketi featuresi onlyi ai smalli numberi ofi standardizedi
products.i Thesei productsi arei primarilyi spoti andi forwardi transactions.i Ini addition,i
therei arei foreign-exchangei options.

Ai spoti transactioni isi thei simplesti producti andi isi usedi fori simplei conversioni
betweeni kroneri andi foreigni exchange.i Fori example,i ani exporti companyi withi
revenuesi ini dollarsi andi expenditurei ini kroneri mayi wishi toi selli itsi dollari revenuesi
ini returni fori kroner.i Thei exchangei ratei oni thei tradingi day,i i.e.i thei spoti rate,i isi thei

Date 4/10/2020
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conversioni ratei fori ai spoti transaction.i Settlementi normallyi takesi placei twoi daysi
later.

Forwardi transactionsi arei ofteni usedi byi companiesi toi hedgei thei exchange-ratei
riski associatedi withi theiri transactions.i Ifi ani exporti companyi knowsi iti willi receivei
dollarsi ini 6i months'i timei iti cani selli thisi futurei dollari revenuei forwardi ini orderi toi
fixi itsi valuei ini kroneri ini advance.i Thei companyi cani thusi immunizei itselfi againsti
fluctuationsi ini thei exchangei rate.i Likewise,i non-residentsi holdingi krone-
denominatedi bondsi cani hedgei theiri positioni byi forwardi salei ofi theiri futurei krone-
denominatedi incomei oni thei bonds.

Foreign-exchangei optionsi arei alsoi usedi toi hedgei thei exchange-ratei risk.i Ani
exporti companyi whichi willi receivei dollarsi ini e.g.i 6i months'i timei cani buyi ani optioni
entailingi thei right,i buti noti thei obligation,i toi selli thei dollarsi ati ai fixedi exchangei ratei
ini 6i months'i time.i Thei companyi isi thusi guaranteedi ai minimumi exchangei ratei fori
itsi dollar-denominatedi income,i shouldi thei dollari depreciatei againsti thei krone.i Thei
premiumi paidi byi thei companyi fori thisi righti dependsi oni severali factors,i primarilyi
maturity,i volatilityi andi thei minimumi exchangei ratei required.

Marketi structure

Asi stated,i thei directi participantsi ini thei professionali foreign-exchangei marketi arei
banks/foreign-exchangei dealers.i Thei groupi ofi directlyi participatingi banksi isi
relativelyi small,i sincei ai numberi ofi smalleri banksi ofteni passi oni customers'i foreign-
exchangei ordersi toi largeri banksi duei toi thei smalli banks'i lacki ofi ai requiredi networki
ofi correspondenti banksi ori toi thei limitedi volumei ofi transactions.i Tradingi ini thei
foreign-exchangei marketi isi alsoi concentratedi oni ai veryi smalli numberi ofi
participants,i andi thei degreei ofi concentrationi hasi intensifiedi sincei 1993.i Today,i thei
fouri principali playersi havei ai marketi sharei ofi approximatelyi 85i peri centi ofi thei
turnoveri ofi thei eighti reportingi banks.

Developmenti ini thei foreign-exchangei market

Turnover1)i ini thei foreign-exchangei marketi fluctuatesi considerably.i Fori example,i

thei currenti turnoveri isi onlyi approximatelyi halfi thei volumei duringi thei foreign-
exchangei unresti ini 1993,i cf.i Charti 2.i However,i thisi doesi noti indicatei thati thei
presenti turnoveri ini thei foreign-exchangei marketi isi significantlyi loweri thani normal,i

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27

buti ratheri thati thei turnoveri wasi abnormallyi highi duringi thei unresti ini 1992-93.i Thei
turnoveri asi suchi doesi noti givei anyi indicationi ofi thei efficiencyi ofi thei market,i buti isi
ini principlei relatedi solelyi toi thei hedgingi requirement/speculationi motive.

Thei banks'i practicei ini thei marketi -i pricei quotationi andi positions

Severali banksi havei enteredi intoi market-makeri agreementsi ini thei foreign-exchangei
marketi alongi thei samei linesi asi thei market-makeri agreementsi fori variousi segmentsi ofi
thei moneyi market.i Market-makeri agreementsi existi ini thei foreign-exchangei marketi fori
spoti transactionsi againsti D-marksi andi dollarsi andi fori forwardi transactionsi againsti
dollars.i Thesei segmentsi accounti fori thei largesti turnoveri ini thei foreign-exchangei
market.i Thei participantsi ini thei agreementsi -i thei marketi makersi -i agreei toi quotei
bindingi two-wayi pricesi againsti eachi otheri withi ai fixedi maximumi spreadi betweeni thei
bidi andi offeri ratesi fori ai certaini amount.

Brettoni woods:

Worldi Wari IIi introducedi ai periodi ofi vulnerabilityi andi edginessi fori somei countriesi andi
individualsi ini Europe,i yeti aroundi thei world.i Thei quicklyi changingi politicali
atmospherei realizedi gigantici variancesi ini cashi esteemsi aroundi thei world.i Ini 1944,i ani
endeavori toi relievei thei harmi broughti abouti byi thei fiercei valuationi ofi individuali
monetaryi formsi duringi WWIIi wasi made.i Everyi onei ofi thei 40i Alliedi countriesi meti ati
thei Unitedi Nationsi Monetaryi andi Financiali Conferencei ati Brettoni Woods,i N.H.i Thei

Date 4/10/2020
28

objectivei ofi thei summiti wasi toi makei ai worldi moneyi relatedi structurei thati wouldi givei
steadinessi andi empoweri nationsi crushedi duringi WWIIi toi recoupi monetarily.i

Monetaryi Policy

Ini Denmark,i thei i Banki goesi abouti asi thei nationali bank,i andi hasi ai fewi specialistsi andi
capacities.i Thei si Banki Acti ofi 1985i layoutsi thei dutiesi presentedi toi thei banki ini itsi
relationshipi toi thei nation'si economy.i Thei banki coinsi cash,i goesi abouti asi ai warningi
bodyi concerningi Denmark'si financiali approach,i andi advancesi ani effectivei residentiali
installmenti framework.i Iti additionallyi worksi workingi togetheri withi thei administrationi
ini regardsi toi financiali issues,i andi iti doesn'ti freelyi executei moneyi relatedi arrangement.i
Ini thei presenti commerciali center,i thei Danishi kronei isi ai free-driftingi cash,i ini thisi
manneri thei Banki isi dynamici ini controllingi financingi costsi concerningi thei money.i

Regulation

Thei valuei commerciali centeri ini Norwayi isi toi ai greati extenti self-directedi byi thei OSE.i
Exchangingi movementi byi peoplei andi gatheringsi arei observedi andi inventoriedi toi
lesseni thei opportunityi ofi fakei marketi controls.i Ifi globali cashi marketsi includingi thei
kronei becomei temperamental,i ori thei survivori ofi conversioni scalei control,i thei Danishi
Banki hasi thei positioni toi mediatei fori thei benefiti ofi thei krone.

Currencyi Pairs

Oni thei forexi advertise,i thei kronei isi exchangedi byi meansi ofi ai couplei ofi selecti moneyi
sets.i Thei twoi mosti normallyi exchangedi cashi pairingsi fori thei kronei arei USD/NOKi andi
EUR/NOK.i Ai territoriali pair,i andi fori thei mosti parti privatelyi exchanged,i isi thei kronei toi
thei Swedishi krona,i NOK/SEK.i Otheri minori setsi includingi thei kronei arei NOK/AUD,i
NOK/JPYi andi NOK/GBP.

Banknotesi andi Coins

Norwegiani kronei banknotesi comei ini ai widei rangei ofi huesi relyingi uponi section.i
Stampedi byi thei Norgesi Bank,i thei notesi arei shadedi asi needsi be:i 1000kri notesi arei
purple,i 500kri notesi arei lighti darker,i 200kri notesi arei blue-green,i 100kri notesi arei
burgundyi andi 50kri notesi arei greeni ini tone.i Picturesi ofi verifiablyi noticeablei
Norwegians,i fori example,i acclaimedi painteri Edvardi Munch,i showi upi oni thei bills.i

Reasons for financial crisis in the country:

i i i i i i

Date 4/10/2020
29

Thei foundationali bankingi emergenciesi ini Norway,i Finlandi andi Swedeni ini 1991i –i
1993i werei amazinglyi astonishingi occasions,i bothi ini lighti ofi thei facti thati theyi
happenedi afteri overi 50i yearsi ofi monetaryi dependabilityi andi oni thei groundsi thati theyi
occurredi ini efficienti Nordici nationsi wherei suchi ani awfuli thingi shouldn'ti occur.i
Becausei ofi moneyi relatedi advancement,i peggedi tradei rates,i highi worldwidei capitali
portabilityi andi uneveni stuns,i thei oldi macroeconomici dependabilityi propertiesi ofi thei
Nordici nationsi hadi unexpectedlyi beeni undermined,i howeveri thisi wasi noti
comprehendedi untili afteri thei financiali emergencies.i Abouti 20i yearsi havei nowi passed,i
andi iti isi intriguingi toi ponderi thei financiali impactsi ofi thei financiali emergenciesi (andi
theiri goals)i oni thei financiali businessi andi thei economy.i Arei therei exercisesi toi bei
educatedi fori differenti nations?i Ini thei writing,i it i hasi beeni stressedi thati budgetaryi
emergenciesi couldi havei trulyi negativei impactsi oni thei genuinei economy,i seei Reinharti
andi Rogoffi (2009).i Ifi noti managedi appropriately,i iti couldi incapacitatei thei crediti
frameworki andi triggeri ai downturn,i or,i asi thei instancei ofi Japani duringi thei 1990s,i leadi
toi ai losti decade.i Ini bothi Finland,i Swedeni andi Norway,i notwithstanding,i financiali
developmenti hasi beeni amazingi afteri 1993,i yeti thei threei nationsi varyi asi fori post-
emergencyi joblessnessi constancy.i Exacti proofi unequivocallyi recommendsi thati mosti
budgetaryi emergenciesi effectslyi affecti governmenti deficienciesi andi obligation.i Thei
ongoingi experiencei ofi Icelandi isi ani outrageousi case.i Therei arei contrastsi betweeni
Norway,i Swedeni andi Finlandi asi toi thei post-emergencyi monetaryi shortfallsi andi
momentumi accounti deficiencies,i justi asi thei financiali expensesi ofi thei financiali
emergencies,i yeti bothi Denmark,i Finlandi andi Swedeni prevailingi withi regardsi toi
movingi intoi safei watersi ofi monetaryi surplusesi ini 1998,i fivei yearsi afteri thei financiali
emergencies,i andi Norwayi ini 1994i asi ofi now.i Ini thei ongoingi worldwidei moneyi relatedi
emergency,i Finland,i Norwayi andi Swedeni havei stayedi awayi fromi hugei banki
misfortunes,i whilei ai fewi Danishi banksi requiredi governmenti support.i Thisi
recommendsi thei financiali emergenciesi ini 1991-1993i mayi havei hadi ai sincei quitei ai
whilei agoi runi learningi impactsi ini thei financiali venturesi ofi Finland,i Norwayi andi
Sweden,i ai viewi thati numerousi Norwegiani investorsi clingi to.i Pasti papersi oni thei
genuinei financiali expensesi regardingi yieldi lossi ofi thei Nordici emergenciesi arei IMFi
(1998),i Hoggarthi eti al.i (2002),i Schwiertzi (2004),i Hagbergi andi Jonungi (2009)i (justi
Finlandi andi Sweden).i 1i thesei strategiesi havei beeni improvedi byi Bordoi eti al.i (2001).i
Thei outcomesi arei touchyi toi thei estimationi ofi yieldi patterns,i howi thei beginningi ofi ai
financiali emergencyi isi distinguished,i andi theyi likewisei geti thei impactsi ofi stunsi thati

Date 4/10/2020
30

arei noti straightforwardlyi identifiedi withi thei financiali emergencies.i Thesei issuesi arei
especiallyi genuinei oni accounti ofi Norway.i Ani astonishingi findingi ofi thei threei firsti
papersi alludedi toi abovei isi ai biggeri monetaryi expensei ini Norwayi thani ini Swedeni andi
Finland,i yeti thisi isi mosti likelyi ani ancienti rarityi ofi thei specifici strategiesi usedi toi
quantifyi patternsi andi thei yieldi holes.i Ini Norwayi ai fundamentali financiali emergencyi
begani ini 1991,i followingi quitei ai whilei ofi bankingi troublei (startingi ini 1987).i Ini 1987,i iti
wasi noti underi anyi conditioni unavoidablei thati thei foundationali bankingi emergencyi
willi undoubtedlyi occur,i ini anyi case.i Ai significanti stuni thati seti offi thei financiali
emergenciesi ini Norway,i Finlandi andi Swedeni wasi thei highi genuinei loani costi afteri thei
Germani unificationi ini 1990.i Withouti thisi stuni thei Norwegiani financiali emergencyi ini
1991-1992i wouldi likelyi noti havei occurredi (Steigum,i 2009).i Thei methodologyi ofi thisi
paperi isi unmistakablyi experimentali withi ai widei hypotheticali systemi includingi bothi
macroeconomici andi politicali economyi components.i Becausei ofi thei distinguishingi
proofi issue,i iti isi absurdi toi expecti toi gaugei monetaryi impactsi ofi ai specifici budgetaryi
emergencyi withi sensiblei accuracy,i neitheri presenti momenti nori progressivelyi constanti
impacts.i Alli thingsi considered,i wei thinki iti isi intriguingi toi takei ai ganderi ati whati befelli
thei financiali segmenti andi toi thei macroeconomici presentationi afteri thei emergency,i andi
looki ati Norwayi andi Denmark,i Finlandi andi Sweden,i fouri ratheri comparativei nationsi
alongi numerousi monetaryi andi institutionali measurements.i Denmarki dodgedi ai
financiali emergencyi (Vastrup,i 2009).i Iti encounteredi ai comparativei blasti asi ini Norwayi
duringi thei 1980s,i andi therei werei additionallyi awayi fromi ofi bankingi trouble,i howeveri
ini Denmarki thei moneyi relatedi deregulationi processi hadi beguni ai loti beforei andi wasi
morei progressivei thani ini thei otheri threei nations.i Thei banki misfortunesi (comparativei
withi GDPi andi alli outi credits)i ini Finlandi werei biggeri thani ini Sweden,i andi thei banki
misfortunesi ini Norwayi werei littleri thani thei Swedish.i Onei wouldi alongi thesei linesi
anticipatei thati anyi short-andi sincei quitei ai whilei agoi runi impactsi ofi thei financiali
emergenciesi oughti toi bei morei prominenti ini Finlandi thani ini Sweden,i muchi littleri ini
Norway,i andi zeroi ini Denmark.i Ini thei Nordici nations,i iti bodesi welli toi thinki asi fari asi ai
two-divisioni modeli ini whichi thei segmentsi producei exchangedi andi non-exchangedi
products.i Iti isn'ti disputablei toi expecti thati variancesi ini totali interesti havei beeni
significanti fori thei blasti andi bustsi ini thei fouri Nordici nations,i andi thati thei moneyi relatedi
deregulationi approachi dischargedi ani enormousi crediti supplyi stuni thati expandedi totali
interesti andi resourcei costs.i Enormousi resourcei valuei developmentsi activatedi richesi
impactsi ini utilizationi justi asi significanti fixedi speculationi changesi duringi thei blasti busti

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31

cycles.i Myi understoodi hypotheticali structurei additionallyi incorporatesi speculationsi

abouti thei politicali framework'si responsesi toi thei emergency.i Thei Nordici nationsi arei
parliamentaryi majorityi rulei governmentsi withi largei governmentsi andi incredible,i non-
chosei commoni helpi staff,i especiallyi ini thei servicesi ofi money.i Norwayi mayi nowi havei
thei mosti remarkablei Ministryi ofi fundi amongi OECDi nationsi (comparativei withi thei
economy'si size),i andi thisi expansioni ini intensityi ofi businessi analystsi ini thei Norwegiani
Governmenti appearsi toi havei happenedi abouti ai similari timei asi thei financiali
emergency.i Therei isi likewisei ai customi ofi corporatismi ini thei Nordici nations,i especiallyi
ini wagei dealing.i Thei institutionali systemi ofi monetaryi arrangementi settlingi oni fori thei
mosti parti settlesi oni surei thati criticali choicesi arei madei toi improvei macroeconomici
results,i considerablyi underi minorityi governments.i Ini thei followingi segmenti wei
condensei thei involvementi ini monetaryi progression,i bankingi troublei andi fundamentali
financiali emergenciesi ini thei fouri Nordici nations.i Segmenti 3i looksi alli thei morei
carefullyi intoi thei Norwegiani financiali industryi andi thei significanti changesi ini
monetaryi supervisoryi methodologyi afteri thei financiali emergency.

Financiali liberalizationi andi bankingi crises

Asi graphi 1i represents,i thei fouri nationsi hadi acquiredi ani expansioni issuei fromi thei
1970s.i Alli nationsi hadi slitheringi pegsi duringi thei 1980s,i withi incidentali downgradesi
plannedi toi improvei costi seriousnessi ofi enterprisesi presentedi toi universali rivalry.i
Nationali banksi werei relianti andi tooki ordersi fromi thei administration.i Ini Norway,i thei
administrationi additionallyi mentionedi toi thei nationali banki whati thei financingi costsi
oughti toi be,i eveni currencyi showcasei rates.i Thisi wasi ai resulti ofi thei "lowi loani feei
arrangement",i withi attachesi backi toi thei 1950s.i Financiali andi moneyi relatedi approachi
duringi thei 1970si wasi asi ai rulei tooi expansionaryi andi noti predictablei withi fixedi tradei
rates,i seei diagrami 2.i Denmarki enduredi thei biggesti financiali shortagesi (andi
furthermorei currenti recordi shortfalls)i duringi thei 1970s.i Ini thei starti ofi thei 1980,i thei
newi traditionalisti governmentsi presentedi ai fewi financiali severityi quantifiesi andi
flaggedi thati iti wouldi noi longeri depreciatei thei Danishi krone,i yeti keepi thei swappingi
scalei fixedi andi securedi toi thei Germani imprint.i Thei newi adjustmenti arrangementi
functionedi admirablyi andi broughti expansioni downi toi 4i percenti ini 1986.i Thei otheri
threei nationsi kepti oni pursueingi peggedi conversioni standardi strategiesi withi lowi
validity.i Norwayi cheapenedi thei kronei afteri ani enormousi oili valuei decreasei ini 1986.i Ini
thei followingi yearsi expansioni expandedi ini everyi onei ofi thei threei nationsi andi wasi noti
checkedi untili thei impactsi ofi downturnsi werei felt i ini ai matteri ofi secondsi beforei thei
Date 4/10/2020
32

financiali emergencies.i Thei threei nationsi thati lateri experiencedi financiali emergenciesi
werei thuslyi confrontingi ani additionali yieldi costi ofi disinflationi thati Denmarki hadi justi
enduredi ini thei mid-1980s.i Ini 1984,i thei Norwegiani governmenti chosei toi begini ai
moneyi relatedi advancementi processi oni thei groundsi thati thei oldi andi longi pasti due,i
quantitativei crediti guidelinei structurei ofi financiali arrangementi wasi noti practicali
(Steigum,i 2009).i Thisi wasi fouri yearsi afteri Denmarki hadi startedi moneyi relatedi
advancement,i howeveri Denmark'si budgetaryi segmenti andi fiscali approachi wasi toi ani ai
loti morei prominenti degreei dependenti oni showcasei clearingi loani feesi thani Norway's.i
Ini addition,i Denmark'si financiali industryi wasi greatlyi improvedi promotedi thani
Norway'si (Vastrupi 2009).i Norwayi wasi monetarilyi immaturei andi eveni didn'ti havei ai
workingi currencyi advertise.i Denmarki hadi builti upi ani arrangementi ofi home-possessioni
accounti whichi shieldedi borrowersi fromi momentaryi variancesi ini thei financingi cost.i Ini
thei otheri threei Nordici nations,i mortgagei holdersi werei considerablyi morei presentedi toi
transienti loani feei hazard.i Ini Norway,i thei moneyi relatedi advancementi seti offi ani
enormous,i positivei crediti supplyi stuni ini 1985i –i 1987,i asi Norwegiani banksi movedi intoi
newi topographicali districtsi andi contendedi forcefullyi fori piecesi ofi thei overalli industryi
byi growingi loaningi andi utilizingi ofi newi staffi (Steigum,i 2009).i Thei loaningi blasti
activatedi overabundancei requesti andi expandingi swellingi ini 1986i andi 1987,i energizedi
byi thei cheapeningi andi unreasonablei compensationi increments.i Sooni afteri Norway,i
Swedeni andi Finlandi likewisei begani ai moneyi relatedi progressioni venture.i Thei prompti
consequencesi fori thei loaningi conducti ofi banksi werei ai loti morei groundedi ini Norway,i
bei thati asi iti may.i Ini Finlandi andi Sweden,i thei loaningi blasti hadi comparativei
macroeconomici impactsi asi ini Norway.i Outlinei 3i representsi thei blastsi andi bustsi ini thei
fouri Nordici nations.i Thei Norwegiani blasti wasi thei mosti briefi one,i finishingi ini 1987i
becausei ofi prohibitivei moneyi relatedi andi monetaryi approaches.i Thei 1986i oili valuei
stuni hadi debilitatedi thei presenti recordi essentiallyi andi giveni thei 5i Ministryi ofi Financei
greati contentionsi toi prescribei ai changei toi ai Danish-stylei monetaryi approachi includingi
financiali somberness,i noi morei debasementsi andi disinflation.i Wei seei fromi outlinei 3i
thati thei Danishi andi Norwegiani blastsi arei veryi comparative,i bothi completioni ini 1987.i
Ini Finlandi andi Sweden,i bei thati asi iti may,i therei werei noi viewi ofi ani emergencyi andi thei
loaningi blasti proceededi fori threei additionali years.i Wei seei fromi outlinei 3i thati thei
Finnishi blasti wasi bothi fasti andi enduring.i Additionallyi Sweden'si blasti kepti goingi
longeri thani thei Norwegian,i yeti itsi speedi wasi morei slowi thani thei Finnishi blast,i

Date 4/10/2020
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presumablyi becausei ofi deficiencyi ofi work.i Duringi loaningi blasts,i overinvestment i ini
lodgingi andi businessi propertyi isi normal.

Systematici crises

Notwithstandingi thei arrivali toi tenablei tradei rates,i withi thei reunificationi ofi Germany, i
thei choppinessi ini thei outsidei tradei showcasei causedi Danishi financingi costsi toi risei
significantlyi morei noteworthyi thani previously.i Asi thei emergencyi extended,i ai fewi
hugei banksi losti alli theiri valuei capitali andi causedi significanti marketi freeze-ups.i Ai fewi
banksi werei lefti wipedi outi andi loaningi ratesi werei tremendous.

Endi ofi recession

Thei administrationi steppedi ini andi startedi executingi measuresi toi fixi thei circumstance.i
Creditsi fromi thei nationali banki werei madei fari underneathi advertisei worthi andi capitali
wasi infusedi intoi thei market.i What'si more,i stricteri prerequisitesi werei puti oni anyi
enduringi banksi acceptingi capitali infusions.i Byi 1992i Norwayi de-peggedi itsi cashi andi
tooki intoi considerationi loani costsi toi fall.i Grossi domestici producti startedi toi risei andi
crediti misfortunesi felli throughouti thei followingi barelyi anyi years.i Byi 1993i banksi thati
hadi losti valuei capitali hadi thei optioni toi recoveri somei ini businessi sectors.

Investment and investing pattern:

i i i

Date 4/10/2020
34

Propertyi investmenti ini aggregatei generatedi particularlyi highi returnsi overi thei
relativelyi shorti periodi fromi 1989i toi 2011.i Financiali assets,i oni thei otheri hand,i
performedi lessi well.i Ani individuali investori isi lessi likelyi toi bei interestedi ini economy-
widei headlinei riski andi returni metrics.i Actuali propertyi investments,i fori example,i
appeari toi bei considerablyi morei riskyi thani headlinei riski metricsi wouldi suggesti –i ini
part,i becausei iti isi difficulti toi obtaini ai diversifiedi portfolioi ofi property.i Individuali
investorsi arei likelyi toi bei concernedi abouti thei riski andi returni theyi cani achieve,i asi
determinedi byi ai rangei ofi additionali factorsi thati varyi fromi personi toi person,i suchi asi taxi
andi leverage.i Pasti returnsi arei noti ai reliablei predictori ofi futurei returnsi andi thisi
uncertaintyi providesi groundsi fori portfolioi diversification.i Additionali considerationsi
suchi asi personali circumstancesi arei alsoi likelyi toi bei importanti andi varyi considerablyi
amongi individuals.i Althoughi lookingi ati riski andi returni perceptioni seemsi ai logicali
placei toi begini thei searchi fori whyi Denmarkersi investi soi muchi ini housing,i thei questioni
musti bei seeni asi remainingi largelyi unanswered.i Previousi researchi alsoi showsi thati therei
isi littlei relationshipi betweeni investmenti choicei andi overalli economici trust,i althoughi
therei isi somei evidencei ofi ai weaki relationshipi betweeni one‘si owni investmentsi andi
thosei ofi familyi andi friends.i Studiesi indicatesi thati thei preferencei isi noti basedi oni ani
accuratei perceptioni ofi differingi ratesi ofi return.i However,i manyi otheri possibilitiesi
remain.i Fori example,i housingi investmenti mayi bei preferredi becausei iti isi supportedi
(andi toi somei extenti underwritten)i byi thei government.i Therei alsoi remaini manyi otheri
unexploredi psychologicali factors.i Finally,i wei commenti oni ani unexpectedi featurei ofi
ouri results.i Toi datei mosti researchi intoi investmenti choicei hasi concentratedi oni sharei
investmenti andi therei arei somei reasonablyi well-establishedi resultsi fromi thisi researchi –i
fori example,i thei relationshipi betweeni sharei investmenti andi riski tolerancei replicatedi ini
ouri Studyi .i Byi contrasti thei factorsi underlyingi investmenti ini housingi havei beeni lessi
studied,i although,i worldwide,i mosti present-dayi investmenti isi actuallyi ini reali estate.i
However,i isi thati thei factorsi underlyingi investmenti ini housingi arei noti simplyi thei
reversei ofi thosei underlyingi investmenti ini shares.i Insteadi theyi appeari toi bei quitei
different.

Investment i choices:

Knowingi grossi annuali returnsi acrossi variousi classesi ofi assetsi isi usefuli ini enrichingi thei
Reservei Bank‘si understandingi ofi economici trends,i giveni thati headlinei returnsi
probablyi influencei thei expectationsi andi behaviori ofi individuals.i Thei relativei returnsi

Date 4/10/2020
35

identifiedi herei werei coincidenti withi thei substantiali increasei ini privatei debti seeni overi
thei pasti 20i years,i muchi ofi iti securedi oni residentiali propertyi andi farms.i Highi asseti
pricesi mayi alsoi havei encouragedi ownersi ofi assetsi toi increasei theiri consumptioni oni thei
backi ofi unexpectedi windfalli gains.i Knowingi grossi historicali annuali returnsi fori recenti
periodsi mayi alsoi bei usefuli fori individuali investorsi thinkingi abouti howi toi allocatei theiri
owni portfolios,i buti ai rangei ofi additionali factorsi arei likelyi toi bei important.

Portfolioi reliability:

Noti alli ofi thei grossi asseti returnsi reportedi herei arei equallyi achievablei byi investors.i Fori
ani averagei Deni markeri toi accessi somei ofi thesei productsi ani investmenti vehiclei isi
necessaryi –i suchi asi ai mutuali fundi –i andi thesei arei subjecti toi additionali fees.i Suchi
fundsi cani replicatei aggregatei equityi ori governmenti bondi indicesi ati relativelyi lowi cost.i
Oni thei otheri hand,i therei isi ori farmlandi marketsi asi ai whole.i Fori assetsi withi returnsi thati
arei difficulti toi replicatei gainingi exposurei typicallyi entailsi greateri costs,i reducingi
realizedi returnsi toi thei investor.i Toi investi ini residentiali property,i investorsi musti buyi
andi selli individuali properties,i withi mosti investorsi onlyi ablei toi achievei limitedi
diversification.i Andi acquiringi ai portfolioi ofi propertyi assetsi tendsi toi bei quitei
expensive.i Fori example,i ani investori lookingi toi holdi 15i percenti ofi ai $500,000i portfolioi
ini propertyi wouldi havei troublei findingi ani appropriatei housei toi purchase.i Rebalancingi
ofi thei portfolio,i byi sellingi thei housei andi buyingi anotheri one,i wouldi involvei
significanti transactionsi costs,i includingi agencyi fees,i searchi costsi andi time.i Iti isi
particularlyi difficulti fori thei averagei Deni markeri toi gaini exposurei toi farmland,i giveni
thei highi valuei ofi thei averagei farmi andi thei limitedi numberi ofi investmenti vehicles.i
Becausei thei farmlandi andi residentiali propertyi indicesi arei non-replicable,i thei riski
associatedi withi actuallyi investingi ini thesei typesi ofi assetsi isi alsoi materiallyi understatedi
ini thei chartsi presentedi earlier.i Risk-adjustedi returnsi fromi aggregatei propertyi pricei
indicesi doi noti takei intoi accounti idiosyncratici riski –i thati is,i thei riski associatedi withi
owningi ani individuali propertyi –i ori thei riski ofi owningi propertiesi withini onei specifici
region.i Thei standardi deviationi fori totali residentiali propertyi returnsi nationwidei overi
thei periodi studiedi herei wasi 7.6i percent.i Buti ifi wei supposei thati ani investori cani onlyi
holdi ai representativei portfolioi of,i say,i Wellingtoni property,i theni Quotablei Valuei
indicesi implyi thati regionali propertyi returnsi hadi ai standardi deviationi ofi 9.4i percenti oni
averagei overi thei samplei period.8i Buti eveni regionali indicesi understatei thei riski
associatedi withi ai typicali investor‘si exposurei toi property.i Ouri estimatesi suggesti thati

Date 4/10/2020
36

thei riski associatedi withi holdingi ani individuali propertyi mighti bei asi muchi asi 12.6i
percent.i Thus,i whilei oni ani economy-widei basisi propertyi mighti appeari toi havei beeni ai
low-riski investmenti optioni overi thei pasti twoi decades,i fori real-worldi individuali
investorsi iti hasi exhibitedi muchi higheri volatilityi thani headlinei figuresi mighti havei
suggested.i Ifi ani investori ownedi onlyi onei property,i oni average,i residentiali propertyi
wouldi havei yieldedi loweri risk-adjustedi returnsi fori themi thani eitheri Denmarki ori
Australiani bonds.

Leverage:

Thei grossi returnsi datai presentedi herei doi noti directlyi takei intoi accounti thei possibilityi
ofi leverage.i Leveragedi investorsi arei thosei whoi borrowi toi fundi theiri investment,i
allowingi greateri exposurei toi thei asseti theyi arei investingi in.i Thisi increasesi potentiali
returns,i buti alsoi thei riski involved.i Toi illustrate,i supposei onei residentiali propertyi
investori isi unleveraged,i whilei anotheri hasi ani 80i percenti mortgage.i Ifi housei pricesi risei
20i percent,i thei unleveragedi investori experiencesi ai 20i percenti return,i whilei thei
leveragedi investori doublesi theiri money.i Ifi housei pricesi falli 20i percent,i thei
unleveragedi investori experiencesi ai 20i percenti loss, i buti thei leveragedi investori losesi alli
ofi theiri equity.i Certaini investmentsi (e.g.i property)i cani bei gearedi toi ai greateri extenti
thani others,i whichi mayi bei attractivei fori somei investors.i However,i somei ofi thei
financiali asseti returnsi reportedi herei alreadyi havei embeddedi leverage:i mosti firmsi ini ani
equityi indexi andi listedi propertyi trustsi willi havei debt.i Accordingi toi ouri estimates,i
listedi propertyi trustsi showi higheri returnsi thani directi commerciali propertyi returnsi andi
alsoi exhibiti greateri variance.i Thisi isi likelyi toi reflecti thei facti thati onei isi ai leveragedi
investmenti andi thei otheri isi not.

Introduction to banks:
i i

Thei Danishi financei industryi investigatedi ini thei GECi surveyi includedi banks,i insurancei
companies,i financiali advisorsi andi otheri financiali institutions.i However,i ini thisi paper,i
wei shalli concentratei oni thei bankingi sector,i whichi ini itselfi isi complexi enough.i Banksi
cani bei classifiedi intoi threei typesi ofi institutions,i commerciali banksi cateringi fori
industry/commerce,i savingi banksi cateringi fori thei householdi andi theiri savings,i andi
―realkreditinstitutioner‖i (mortgagei banks)i providingi housingi loansi fori privatei asi welli
asi business.i Overi thei morei thani 100i yearsi ofi existence,i thei bordersi betweeni thei threei
typesi ofi institutionsi arei gettingi blurred,i andi todayi thei differencesi arei clearlyi

Date 4/10/2020
37

diminishing.i Almosti alli retaili banksi arei becomingi morei likei financiali supermarketsi
cateringi fori alli typesi ofi customersi andi alli typesi ofi bankingi business,i drawingi uponi
specializedi financiali institutionsi fori speciali tasks.i Mortgagei banksi arei approachingi
retaili banksi andi commerciali banksi throughi thei establishmenti ofi retaili bankingi
activities.i Ini thei futurei thei differencei isi likelyi toi disappear.i Belowi wei shalli
concentratei exclusivelyi oni thei commerciali banksi andi thei savingsi banksi –i thei Danishi
Retaili bankingi sector.

Ini spitei ofi thei largei numberi ofi banks,i thei concentrationi ini thei financei sectori isi veryi
high.i Thei twoi largesti banksi togetheri havei approximatelyi 75%i ofi thei totali balance,i asi
showni ini thei followingi listi indicatingi marketi sharei measuredi oni balance:

 Danskei Banki 50.5%

 Nordeai (Danishi part)i hasi 23.4%
 Jyskei Banki 5.0%
 FIHi 2.8%
 Sydbanki 2.8%.

Thei nexti 17i banksi sharei 9.8%,i andi afteri thosei followi 71i banksi withi ai totali balancei ofi
onlyi 5.0%i ofi thei market.i Thei remainingi 88i banksi sharei justi 0.4%i ofi thei Danishi
market.i i Buti thei numberi ofi banksi isi stilli absurdi highi consideringi ai populationi ofi onlyi
5.3i millioni ini Denmark.i Thei reasonsi fori thei largei numberi ofi smalli banksi stilli ini
existencei arei primarilyi thei veryi strongi jointi institutionsi supportingi alli Danishi banks,i
largei ori small,i andi thei facti thati alli thei smalli banksi arei servicedi byi threei largei IT-
centres.i Ifi wei looki ati thei totali numberi ofi branches,i tablei 1i showsi ai smalli reductioni
overi thei teni years.i Thisi meansi thati thei numberi ofi inhabitantsi peri branchi isi goingi up,i
andi ini 2003i thei figurei isi ai littlei overi 2500i inhabitantsi peri branchi oni average.i Thisi isi ai
figurei justi ai littlei loweri thani thei EU.i

Denmarki natioonali bank:

Thei Reservei Banki ofi Denmarki isi Denmark‘si centrali bank.i Wei promotei ai soundi andi
dynamici monetaryi andi financiali system.i Thei originsi ofi thei Reservei Banki stretchi backi
manyi yearsi beforei itsi foundingi ini 1934.i Initiallyi –i aparti fromi onei short-livedi
experimenti –i Denmarki hadi noi centrali banki ablei toi issuei currency.i Notesi werei issuedi
byi thei maini tradingi banks.i Thati workedi afteri ai fashion,i buti byi thei earlyi twentiethi

Date 4/10/2020
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century,i centrali banksi alsoi fulfilledi ai numberi ofi policyi rolesi withini nationali
economies.i Thei Britishi werei eageri fori Denmarki andi Australiai toi seti upi theiri own,i
modeledi afteri thei Banki ofi England.i Althoughi interested,i thei Denmarki governmenti
wasi initiallyi reluctanti toi doi so.

Wei worki towardsi ouri purpose,i visioni andi valuesi byi

 Operatingi monetaryi policyi toi achievei andi maintaini pricei stabilityi andi supporti
employment
 i Assistingi thei functioningi ofi ai soundi andi efficienti financiali system
 i Meetingi thei currencyi needsi ofi thei public
 i Overseeingi andi operatingi effectivei paymentsi systems
 i Providingi effectivei supporti servicesi toi thei Banks.i Thei followingi banksi arei
workingi ini Denmark.
 Anzi bank
 i asbi bank
 i banki direct
 i banki ofi denmark
 i citibanki denmark
 Cooperativei banki
 i deutschei bank
 i hbsi banki
 i heartlandi banki
 i hsbci
 i kiwibanki
 i kookmini bank
 i rabobanki

HBSi BANK:

HBSi Banki alsoi knowni asi Hastingsi Buildingi Societyi operatesi asi ai divisioni ofi thei SBSi
Banki withi branchesi servingi thei Hawke‘si Bayi regioni Originallyi foundedi wayi backi
wheni ini 1885,i thei banki hadi itsi initiali headquartersi locatedi ini Hastings,i Hawkesi Bay, i
Denmark.i Andi iti kepti iti therei fori thei nexti 100i years.i Formerlyi knowni asi Thei Hastingsi
Permanenti Buildingi andi Investmenti Societyi (HPBIS),i thei namei wasi changedi toi

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Hastingsi Buildingi Societyi Limitedi (HBS)i ini Julyi ofi 1997.i 13i yearsi lateri oni Octoberi 1,i
2010,i HBSi membersi endorsedi ai deali toi mergei withi andi becomei ai subsidiaryi ofi SBSi
Bank.i Membersi votedi overwhelminglyi ini thei favouri ofi thei merger,i withi 98%i tickingi
thei yesi box.i Underi thei approvedi merger,i thei 125-yeari oldi brandi whichi HBSi builti upi
wasi toi continue,i alli staffi andi managementi werei toi bei kepti oni board,i andi $100,000i peri
yeari wouldi bei distributedi toi thei communityi throughi variousi formsi ofi sponsorship.

HEARTLANDi BANKi

Heartlandi Banki wasi establishedi ini 2011i asi ai resulti ofi thei mergeri ofi fouri financiali
organisationsi ini Denmark.i Rootsi ofi thei banki stretchi backi toi thei 19thi century.i Thei
initiali banki ofi thei groupi wasi Ashburtoni Permanenti Buildingi &i Investmenti Society.i
Fromi therei ai mergeri betweeni them,i thei SMCi Buildingi Societyi andi Loani &i Buildingi
Societyi camei togetheri toi becomei CBSi Canterbury.Morei recentlyi ini 2011,i CBSi
Canterburyi mergedi withi Southeri Cross,i MARACi andi PWFi toi operatei asi ai solei
businessi unit.i Andi eveni morei recentlyi ini 2013,i theyi buildingi societyi convertedi toi
becomei andi officiali company,i ini whichi Heartlandi Banki wasi born.i Assetsi ofi thei
companyi arei valuedi ati ai massivei $2.34i billioni whichi 350i employeesi takei carei ofi everyi
day.

HSBCi DENMARK

i HSBCi Denmarki isi ai branchi ofi Thei Hongkongi andi Shanghaii Bankingi Corporation.i
Offeringi financiali servicesi ini Denmarki sincei 1987i HSBCi isi onei ofi thei world‘si largesti
andi mosti powerfuli bankingi andi financiali servicesi organisationi ini thei world.i Acrossi
theiri 4,400i officesi ini 71i countries,i theiri employersi teami togetheri toi servei morei thani 45i
millioni customers.i Thei companyi hasi fouri globali businessesi ini whichi theyi conducti
theiri business;i Retaili Bankingi andi Wealthi Management,i Globali Bankingi andi Markets,i
Commerciali Banking,i andi Globali Privatei Banking.i Asi fori Denmark,i HSBCi hasi ai fewi
branchesi scatteredi aroundi bothi thei Northi andi Southi Islands.

KOOKMINi BANK;

Kookmini Banki isi ai Southi Koreani banki whichi hasi beeni operatingi ini Denmarki asi welli
sincei itsi registrationi ini 1997.i Makingi iti onei ofi thei olderi banks.i Originallyi foundedi 53i
yearsi ago,i itsi headquartersi continuei toi remaini ini thei hearti ofi Southi Korea,i itsi capitali
cityi Seoul.i Focusingi morei oni thei Asiani market,i Kookmini Banki doesi ai fewi locationsi

Date 4/10/2020
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acrossi continentali borders.i Marchi 2014i sawi thei banki ratedi asi amongi thei fouri largesti ini
Southi Koreai byi asseti value.i Kookmini Banki isi onlyi onei ofi thei divisionsi itsi parenti
company,i KBi Financiali Group,i operates.i Theyi alsoi havei activitiesi ini insurance,i datai
systems,i crediti information,i reali estatei trust,i andi muchi more.

Bankingi systemi ofi Denmark:

Thei bankingi systemi comprisesi thei majorityi ofi lendingi toi thei non-financiali privatei
sectori ini Denmark.i Directi capitali marketi fundingi (issuancei ofi corporatei bonds)i andi
non-banki lendingi institutionsi (NBLIs)i togetheri accounti fori onlyi 6i percenti ofi non-
financiali privatei sectori borrowing.i Thei Denmarki bankingi systemi isi highlyi
concentrated.i Whilei therei arei currentlyi 26i registeredi banks,i thei fouri largei Australian-
ownedi banksi (ANZ,i ASB,i BNZ,i andi Westpac)i arei responsiblei fori 86i percenti ofi banki
lendingi thei fivei Denmark-ownedi banksi accounti fori 8i percenti ofi banki lending.i Fori thei
Australian-ownedi banks,i thei Denmarki subsidiaries‘i totali assetsi representi betweeni 9i
andi 16i percenti ofi theiri respectivei Australiani parenti group‘si totali assets.i Thesei
Australian-ownedi banksi alli havei highi crediti ratingsi byi internationali standardsi (ai tablei
ofi currenti crediti ratingsi isi presented.i Despitei thei Denmarki financiali systemi beingi
dominatedi byi banks,i thei bankingi systemi itselfi isi relativelyi smalli byi globali standards.i
Totali assetsi ofi thei systemi werei justi underi $556i billioni NZDi ini Marchi 2019,i whichi ati
aroundi 187i percenti ofi GDPi isi ati thei loweri endi ofi thei rangei fori OECDi countries.i Ai
consolidatedi balancei sheeti ofi thei bankingi systemi isi presentedi ini tablei 1.i Loansi andi
advancesi accounti fori overi 80i percenti ofi bankingi systemi assets.i Banksi holdi ai smalli
amounti ofi tradingi securitiesi andi theiri holdingsi ofi derivativesi arei primarilyi fori hedgingi
purposes.i Depositsi accounti fori overi 60i percenti ofi liabilitiesi andi equity.

Date 4/10/2020
41

Commerciali bankingi ini country:

Commerciali banksi ini Denmarki werei traditionallyi mutuali organizationsi ownedi byi theiri
membersi ori investors,i whichi concentratedi oni personali savingsi accountsi andi
mortgagesi fori residentiali property.i Ini thisi respecti theyi werei muchi likei buildingi
societiesi ini thei UKi andi savingsi andi loani organizationsi ini thei USA.i However,i
deregulationi ini thei financiali sectori duringi thei ‘80si allowedi commerciali banksi toi enteri
thisi market.i Withi theiri greateri financiali clouti andi marketingi expertisei they‘vei
managedi largelyi toi takei iti over,i andi asi ai resulti manyi savingsi banksi havei eitheri
convertedi toi commerciali ori registeredi banksi ori beeni takeni overi byi them.i Changesi ini
thei bankingi systemi overi thei lasti fewi yearsi havei meanti thati mosti individualsi andi
businessesi ini Denmarki carryi outi theiri banking,i includingi savings,i loans,i mortgagesi
andi day-to-dayi transactions,i withi onei ofi thei registeredi commerciali banksi (therei werei
16i ini 2005).i Banksi operatingi ini thisi sectori include:i Australiai Denmarki Banki (ANZ,i
www.anz.com/nz)i andi ASBi (www.asbbank.co.nz),i formerlyi thei Aucklandi Savingsi
Bank.i Noti surprisingly,i thei ASBi isi strongesti ini Aucklandi buti it'si alsoi populari
throughouti thei resti ofi thei countryi andi ini 2004,i fori thei fifthi consecutivei year,i wasi ratedi
Denmark‘si numberi onei majori banki ini termsi ofi customeri satisfactioni ini ai Universityi ofi
Aucklandi surveyi ofi banki customers.i Thei Banki ofi Denmarki (BNZ,i www.bnz.co.nz)i isi
Denmark‘si largesti banki ini asseti termsi and,i despitei itsi name,i isi whollyi Australian-
owned.i Thei Nationali Banki (www.nationalbank.co.nz)i andi Westpaci NZi
Date 4/10/2020
42

(www.westpac.co.nz),i whichi probablyi hasi thei largesti marketi sharei ini thei countryi (1.3i
millioni customersi ini 2005)i andi isi alsoi thei government‘si banker.i It‘si estimatedi thati
onlyi somei 12i peri centi ofi thei Denmarki bankingi marketi isi operatedi byi indigenousi
banks.i Notei thati thei Denmarki bankingi operationsi ofi Australiani banksi arei completelyi
separate,i thereforei customersi ofi Australiani Westpac,i fori example,i cannoti accessi theiri
Australiani accountsi ati Westpaci ini Denmark,i ori vicei versa.i Somei banksi arei mainlyi
telephonei andi internet-based,i e.g.i TSBi (www.tsb.co.nz).i PSISi isi ai financiali institutioni
ownedi byi itsi customers,i whichi offersi bankingi servicesi administeredi byi thei Banki ofi
Denmark,i althoughi iti isn‘ti ai banki andi asi suchi isn‘ti ai memberi ofi thei Bankingi
Ombudsmani schemei nori subjecti toi supervisioni byi thei Reservei Bank.i Thei largei
insurancei group,i AMPi (www.amp.co.nz),i alsoi offersi bankingi services.i Thei bankingi
systemi ini Denmarki isi ai relativelyi simplei onei structurallyi andi comprisesi ai centrali
bank–thei Reservei Banki ofi Denmark–fivei commerciali ori tradingi banksi (eachi withi itsi
owni privatei savingsi bank),i trusteei savingsi banks,i andi thei Denmarki Posti Officei
Savingsi Bank.i Ai numberi ofi otheri institutionsi ini Denmarki notablyi thei stocki andi stationi
agencyi companiesi alsoi undertakei somei functionsi usuallyi regardedi asi distinctivei toi
bankingi business.i Buti asi suchi transactionsi asi thei acceptancei ofi depositsi andi thei
operationi ofi currenti accountsi thati mayi bei drawni oni byi chequei ori orderi arei normallyi ai
relativelyi smalli proportioni ofi theiri totali business,i andi asi theiri totali depositsi arei smalli
comparedi withi thosei ofi thei tradingi banks,i theyi arei noti requiredi toi complyi withi
legislationi relatingi toi banks.i Thisi position,i however,i mayi changei ini thei future.i Thei
Trusteei Savingsi Banksi Amendmenti Acti ofi 1957i gavei authorityi toi thei Ministeri ofi
Financei toi approvei ini certaini circumstancesi thei openingi ofi newi savingsi banks,i andi ini
Junei 1959i thei Waikatoi Savingsi Banki begani businessi ini Hamilton.i Sincei theni severali
otheri banksi havei beeni established.i Thei Posti Officei Savingsi Bank,i byi fari thei biggesti
savingsi bank,i wasi establishedi ini 1867,i andi hasi sincei growni intoi ai majori financiali
institution.

 ➢i Banksi employi overi 25,000i people.

 ➢i Thei fivei majori banksi paidi $2.6i billioni toi employeesi nationwide.
 ➢ i Denmarki rankedi firsti ini macroeconomici stabilityi ini thei Worldi Economici
Forum‘si Globali Competitivenessi Reporti 2018.i
 ➢i Thei soundnessi ofi Denmark‘si banksi continuesi toi ranki highlyi (ninthi outi ofi
140i countries).

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43

 ➢i Denmarki hasi overi 900i banki branches.

 ➢i Denmarki hasi overi 2,500i banki ATMs.
 ➢i Denmarki banksi havei ani asseti basei (totali assets)i ofi $530i billion.i
 ➢i Ini 2018i thei returni oni assetsi wasi 1.12%.i
 ➢i Banks‘i averagei returni oni equityi ini 2018i wasi 14.88%.
 ➢i Banks‘i averagei neti interesti margini ini 2018i wasi 2.12%,i upi fromi 2.08%i ini
2017.
 ➢ i Ini 2018i thei fivei majori Denmarki banksi hadi ani averagei totali capitali
adequacyi ratioi ofi 14.85%.i
 ➢i Loansi toi householdsi ati Decemberi 2018i totalledi $267.3i billion.i
 ➢ i Loansi toi businessesi (excludingi agriculture)i ati Decemberi 2018i totalledi
$108.3i billion.
 ➢i Loansi toi thei agriculturali sectori ati Decemberi 2018i totalledi $62.5i billion.

Structure of asset and liabilities:

i i i i

Structurei ofi assetsi andi liabilitiesi ofi Denmarki ofi thei bankingi systemi isi presentedi Loansi
andi advancesi accounti fori overi 80i percenti ofi bankingi systemi assets.i Banksi holdi ai smalli
amounti ofi tradingi securitiesi andi theiri holdingsi ofi derivativesi arei primarilyi fori hedgingi
purposes.i Depositsi accounti fori overi 60i percenti ofi liabilitiesi andi equity.i Thei Denmarki
banksi totali assetsi representi betweeni 9i andi 16i percenti ofi theiri respectivei Australiani
parenti group‘si totali assets.i Thesei Australian-ownedi banksi alli havei highi crediti ratingsi
byi internationali standardsi (ai tablei ofi currenti crediti ratingsi isi presented.i Despitei thei
Denmarki financiali systemi beingi dominatedi byi banks,i thei bankingi systemi itselfi isi
relativelyi smalli byi globali standards.i Totali assetsi ofi thei systemi werei justi underi $556i
billioni NZDi ini Marchi 2019,i whichi ati aroundi 187i percenti ofi GDPi isi ati thei loweri endi ofi
thei rangei fori OECDi countries.

Cashi andi notes:

Reporti alli Denmarki currencyi (Euro)i held.i Includei bothi notesi andi coinsi issuedi ori
authorizedi byi thei Reservei Banki ofi Denmarki (RBNZ).i FXi includesi alli foreigni
currencyi notesi andi coini heldi thati hasi beeni issuedi ori authorizedi byi offshorei centrali
banksi ori governments.

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Depositsi withi institutions:

Depositsi arei amountsi whichi arei redeemablei ori withdrawi ablei fromi anotheri banki ori
financiali institutioni andi arei noti debti securitiesi ori heldi asi availablei fori sale.i

 Includei nostroi andi vostroi accountsi andi otheri short-termi deposits

 Includei redeemablei sharesi (issuedi byi buildingi societies)
 Includei depositsi heldi withi relatedi partiesi
 Includei exchangei settlementi accounti balancesi ati thei RBNZi
 Doi noti includei debti securities,i loansi andi advances,i ori securitiesi purchasedi
underi
 agreementi toi resell

Debti securities:

Debti securitiesi arei negotiablei instrumentsi servingi asi evidencei ofi ai debt;i cani bei boughti
ori soldi betweeni twoi partiesi andi havei basici termsi defined,i suchi asi notionali amounti
(amounti borrowed),i interesti ratei andi maturity/renewali date.i Debti securitiesi includei
governmenti bonds,i corporatei bonds,i CDs,i locali bodyi bonds,i preferredi stock,i
collateralizedi securitiesi andi zero-couponi securities.i Ai breakdowni ofi instrumenti typei isi
reportedi ini thei Liquidityi Survey,i seei Primaryi andi Secondaryi liquidity.

 Onlyi includei securitiesi ifi heldi withi tradingi intenti ori cani bei traded.
 Holdingsi ofi otheri banks‘i debti capitali securitiesi thati cani bei soldi ori transferredi
without.
 i Re-documentationi shouldi bei recordedi asi debti securitiesi andi noti bei recordedi asi
loans.i
 Doi noti includei loansi andi advancesi ori securitiesi purchasedi underi agreementi toi
resell.i
 Thesei shouldi bei reportedi ini questioni 4i ―Loansi andi advances‖i ―Securitiesi
purchasedi underi agreementi toi resell‖,i dependingi oni thei counterparty.

Loani andi advances:

Loansi andi advancesi (ori receivables)i arei financiali assetsi withi fixedi ori determinablei
paymentsi thati arei noti quotedi ini ani activei market.i Loansi arei financiali assetsi thati (1)i arei
createdi wheni ai creditori lendsi fundsi directlyi toi ai debtor,i andi (2)i arei evidencedi byi

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nonnegotiablei documents.i Ini thei ―Assetsi byi reprising‖i tabi loansi andi advancesi arei
classifiedi byi productsi includingi interesti only,i revolvingi credit,i principali &i interest,i
financei leases,i crediti cardsi andi other.

Loani types:

 ➢i Interesti onlyi loans.

 ➢i Reversei mortgages
 ➢i Revolvingi crediti loansi
 ➢i Principali &i interesti loans
 ➢i Financei leasesi
 ➢i Crediti cardi loans

Derivativesi ini asseti position:

Derivativesi arei instrumentsi thati derivei theiri valuei fromi ani underlyingi asset,i ani
underlyingi liability,i ani index,i ori referencei rate.i Derivativesi ini ani asseti positioni arei
contractsi wherei thei marketi valuei ofi thei closingi positioni isi positivei ati thei reportingi
date.i Reporti alli derivativesi withi ai FXi legi underi thei FXi columni ini thei Counterpartyi
tab.i Ai derivativei isi ai financiali instrumenti linkedi toi ai specifici ‗underlying‘i financiali
instrument,i indicatori ori commodity,i throughi whichi specifici financiali risksi cani bei
tradedi ini theiri owni right.i Recognitioni ofi derivativesi isi toi bei consistenti withi NZi
GAAP.i Derivativei contractsi cani eitheri bei bindingi oni bothi partiesi (asi withi ai currencyi
swap)i ori subjecti toi thei exercisei byi onei partyi ofi ai righti containedi ini thei contracti (asi
withi options).

Optionsi includingi calli andi puti options;i exchangei tradedi andi over-the-counteri

 ➢i options;i interesti rate,i bullion,i commodityi andi equityi options;i warrantsi andi
swapi
 ➢i optionsi
 ➢i Interest-ratei swapsi
 ➢i Crossi currencyi interesti ratei swapsi
 ➢i Currencyi swapsi
 ➢i Futuresi (e.g.i banki bill,i bond)i

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 ➢i Forwardi ratei agreementsi

 ➢i Forwardi foreign-exchangei contractsi
 ➢i Employeei stocki options

Otheri assets:

 ➢i Insurancei assetsi
 ➢i Accountsi receivablei (Tradei crediti &i advances)i
 ➢i Dividendsi receivablei
 ➢i Taxi assetsi
 ➢i Property,i planti &i equipmenti
 ➢i Goodwilli andi Intangiblesi
 ➢i Otheri assets

Depositsi form:

Depositsi arei standard,i non-negotiablei contractsi openi toi thei publici thati allowi thei
placementsi ofi variablei amountsi ofi fundsi andi thei lateri withdrawal.i Depositsi excludei
anyi debti securitiesi buti includei redeemablei sharesi issuedi byi buildingi societiesi toi
customers.

Debti securitiesi issued:

Debti securitiesi arei negotiablei instrumentsi servingi asi evidencei ofi ai debt;i cani bei boughti
ori soldi betweeni twoi partiesi andi havei basici termsi defined,i suchi asi notionali amounti
(amounti borrowed),i interesti ratei andi maturity/renewali date.i Debti securitiesi issuedi
includei CDs,i preferredi stock,i collateralizedi securitiesi (suchi asi CDOs,i CMOs,i
GNMAs)i andi zero-couponi securities.i

 ➢i Short-termi debti securitiesi (≤i 1i year)i

 ➢i Subordinatedi debti securitiesi (>i 1i year)i
 ➢i Alli otheri long-termi debti securitiesi (>i 1i year)

Borrowings:

Fori thei purposesi ofi thisi survey,i ‗borrowing‘i isi ai loani toi thei bank.i Ai loani isi ai financiali
liabilityi createdi wheni fundsi arei borrowedi directlyi fromi ai lenderi andi arei evidencedi byi

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documentsi thati arei noti negotiable.i Fori thisi survey,i repurchasei agreementsi arei treatedi
asi collateralizedi loans.i

Derivativesi ini ai liabilityi positioni Derivativesi arei instrumentsi thati derivei theiri valuei
fromi ani underlyingi asset,i ani underlyingi liability,i ani indexi ori referencei rate.i
Derivativesi ini ai liabilityi positioni arei contractsi wherei thei marketi valuei ofi thei closingi
positioni isi negativei ati thei reportingi date.i Reporti alli derivativesi withi ai FXi legi underi thei
FXi columni ini thei Counterpartyi tab.i Ai derivativei isi ai financiali instrumenti linkedi toi ai
specifici 'underlying'i financiali instrument,i indicatori ori commodity,i throughi whichi
specifici financiali risksi cani bei tradedi ini theiri owni right.i Recognitioni ofi derivativesi isi toi
bei consistenti withi NZi GAAP.i Derivativei contractsi cani eitheri bei bindingi oni bothi
partiesi (asi withi ai currencyi swap)i ori subjecti toi thei exercisei byi onei partyi ofi ai righti
containedi ini thei contracti (asi withi options).

Otheri liabilities:

Alli liabilitiesi noti alreadyi classifiedi ini onei ofi thei otheri instrumentsi notedi above.i
Includesi claimsi ori obligationsi arisingi fromi transactionsi ini financiali assets.i Ai
transactioni isi recordedi ati thei timei ofi changei ini economici ownership,i whichi mayi
precedei settlementi (payment)i fori thei financiali asseti byi severali daysi ori longer.i Fori thei
provideri ofi thei futurei payment,i thei claimi isi recordedi ini otheri liabilities.

Basel II accord:
i i

Thisi chapteri givesi ani overviewi fori thei Baseli Committeei andi itsi scopei ofi work.i Wei
discussi abouti thei maini risksi fori thei banks,i thei reasonsi ofi creationi ofi thei Baseli Ii
Accordi andi fori itsi lateri revision.i Ai newi Accord,i Baseli II,i wasi releasedi ini 2006.i Ai
discussioni abouti thei differencesi betweeni Baseli Ii andi Baseli IIi isi alsoi provided.

Baseli Committee

Thei Baseli Committeei wasi establishedi ini 1974.i Thei reasoni ofi itsi creationi wasi ai
negativei experiencei withi failuresi ofi internationallyi activei banksi ini thei 1970si thati
providedi ani amplei reasoni toi bei concernedi withi thei financiali stabilityi ofi thei banksi
worldwidei (Tarullo,i 2008).i Linkagesi throughi thei interbanki lendingi marketi ori thei
paymentsi systemi meanti thati ai foreigni bank´si failurei couldi createi problemsi fori
domestici banksi asi well.

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Baseli Ii Accord

Thei annuali reportsi ofi thei Baseli Committeei ini thei earlyi 1980si consistentlyi mentionedi
thei supervisorsi concerni overi thei erosioni ofi banki capitali levelsi worldwide.i Supervisorsi
hadi apparentlyi anticipatedi thei riski ofi whati hasi since,i ini variousi contexts,i becomei
knowni asi ai ―racei toi thei bottom‖i (Tarullo,i 2008),i wherebyi onei country´si lower i
regulatoryi standardsi makei iti morei difficulti fori otheri countriesi toi maintaini rigorous,i
buti necessarilyi morei costlyi standards.

Ini Julyi 1988,i thei Baseli Committeei releasedi thei finali versioni ofi thei Accord,i knowni
nowi asi Baseli I.i Baseli Ii wasi motivatedi byi twoi interactingi concernsi –i thei riski posedi toi
thei stabilityi ofi thei globali financiali systemi byi lowi capitali levelsi ini internationallyi
activei banksi andi thei increasingi competitivei advantagei ofi thei banksi withi loweri capitali
requirementsi (Tarullo,i 2008).i Onei ofi thei maini targetsi ofi Baseli Ii wasi toi createi ai
convergencei ini bankingi sectori acrossi thei countries.

Baseli IIi framework

However,i fewi yearsi later,i developmentsi ini riski measurementi andi managementi havei
widenedi thei gapi betweeni thei regulatoryi capitali measurei underi thei 1988i Accordi andi
thei internali capitali measuresi usedi ati manyi internationallyi activei banks.i Morei
sophisticatedi technologyi andi telecommunications,i asi welli asi marketi innovations,i havei
enabledi banksi toi betteri measurei andi managei theiri risks.

Asi ai result,i thei Baseli Committeei determinedi thati ai newi capitali frameworki wasi neededi
thati wouldi addressi thesei developmentsi fori thei mosti complexi andi sophisticatedi banks,i
buti alsoi bei appropriatei fori lessi complexi banks.i Thei Committeei determinedi thati thei
newi capitali frameworki shouldi additionallyi providei incentivesi fori banksi toi improvei
theiri riski managementi practicesi withouti reducingi thei overalli leveli ofi capital,i heldi ini
thei bankingi system.

Ai newi Accord,i whichi receivedi thei namei Baseli II,i wasi presentedi byi Jaimei Caruana3i
oni thei internationali conferencei ini Mayi 2005:i ―Baseli II,i ini myi view,i isi fundamentallyi
abouti betteri riski managementi andi corporatei governancei oni thei parti ofi banks,i asi welli
asi improvedi bankingi supervisioni andi greateri transparency.i Iti isi alsoi abouti increasingi
thei stabilityi ofi thei globali financiali system,i toi thei benefiti noti onlyi ofi banks,i buti alsoi
consumersi andi businesses.

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49

Howi Danishi banksi managedi recenti economici downturni (2007-2008)i takingi intoi
accounti thati Baseli IIi thei newi capitali regulationi posesi somei restrictionsi toi thei
banksi riski capital?

Threei distincti researchi questionsi werei formulated.i Thei firsti questioni wasi relatedi toi thei
reasonsi fori whyi Baseli IIi isi magnifyingi thei bankingi sectorsi pro-cyclicalityi asi welli asi
howi thei solvencyi ofi thei Danishi banksi hasi beeni affectedi ini thei economici downturn.i
Thei secondi questioni wasi abouti thei reasonsi fori differenti impacti oni banks‘i solvency.i
Thei thirdi questioni addressedi howi thei capitali regulationi ofi banksi couldi bei improved.

Analysisi identifiedi fewi reasons,i whyi banksi arei inherentlyi pro-cyclical.i First,i banks‘i
businessi modeli isi inherentlyi pro-cyclicali -i theyi providei crediti toi thei customersi whosei
crediti qualityi isi dependingi oni thei generali economici cycle.i Second,i sincei veryi largei
lossesi arei extremelyi infrequenti events,i banksi economici capitali modelsi havei beeni
unablei toi takei themi intoi considerationi wheni calculatingi thei riski capitali requiredi fori
unexpectedi losses.i Iti wasi alsoi foundi thati Baseli IIi magnifiesi thei industry‘si pro-
cyclicality,i becausei iti introducesi closeri alignmenti betweeni thei actuali riski andi capitali
adequacy.i Thei morei accuratelyi thei value,i andi relativei risk,i ofi eachi banki isi measuredi ati
anyi pointi ofi time,i thei greateri willi bei thei pro-cyclicalityi ofi thei prudentiali regime.i
Mediumi sizedi Danishi banksi werei morei negativelyi affectedi byi thei downturni pro-
cyclicalityi effecti thani (Internali ratingi basedi approach)i IRBi banks.i 7i outi ofi 9i standardi
banksi hadi significantlyi deterioratedi solvencyi ini 2008.i Onei reasoni fori thisi
inconsistencyi couldi bei thati largei banksi havei morei sophisticatedi methodsi andi modelsi
toi calculatei bothi expectedi andi unexpectedi losses. i Thei mediumi sizedi Danishi banks,i
whichi seemi toi havei sufferedi mosti duringi thei crises,i mayi havei noti beeni soi successfuli
withi predictingi thei behaviori ini thei tailsi ofi thei crediti lossi distribution

Ini thei hearti ofi thei Baseli IIi pro-cyclicalityi critiquei isi thei notioni thati newi regulationi
makesi thei solvencyi ofi banksi highlyi dependenti oni thei crediti ratingi ofi banks‘i
customers.i Thus,i ini thei currenti macroeconomici recessioni Danishi banks‘i solvencyi wasi
worsenedi noti becausei ofi write-offsi ofi badi loansi ori additionali lendingi activities,i buti
simplyi becausei ofi worsenedi crediti ratingi oni customersi ofi thei banks.i Ini addition,i iti
probablyi hasi beeni difficulti fori banksi toi estimatei thei creditworthinessi ofi theiri
customersi becausei ofi thei lacki ofi lossi data,i veryi littlei experiencei withi newi Baseli IIi
rulesi andi becausei thei statisticali modelsi theyi usei havei noti yeti beeni triedi outi ini thei
crisisi situation.i Alli thisi makesi iti extremelyi difficulti fori banksi toi estimatei thei leveli ofi
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capitali theyi needi toi holdi againsti unexpectedi losses.i Thereforei thei implementationi ofi
Baseli IIi ini thei endi ofi thei macroeconomici expansioni periodi ini Denmarki hasi hadi quitei
significanti impacti oni thei solvencyi ofi Danishi banks.

Thei deteriorationi ofi profitabilityi fromi 2006i toi 2008i andi thei asseti qualityi (indicatedi ini
2008impairmenti losses)i seemi toi bei parti ofi thei reasonsi fori differencei ini thei downturni
pro-cyclicalityi impact.i Fouri outi ofi seveni banks,i whosei solvencyi sufferedi most,i hadi
bothi severedi decreasesi ini theiri profitabilityi andi highi impairmenti lossesi ini 2008.i Highi
exposurei toi thei real-estatei sectori (propertyi managementi business)i andi thei relativelyi
higheri exposurei toi thei corporatei sectori havei ini casei ofi somei banksi alsoi contributedi toi
thei severei negativei solvencyi impact.i Thei higheri exposurei toi thei financiali institutionsi
hasi ini somei casesi tooi exaggeratedi thei negativei downturni effect.i Twoi maini solutionsi toi
howi toi improvei thei capitali regulationi werei analyzed:i extrai capitali buffersi andi timei
varyingi levelsi ofi riski curves.

Risk management:
i

Riski managementi isi definedi asi ―thei forecastingi andi evaluationi ofi financiali risksi
togetheri withi thei identificationi ofi proceduresi toi avoidi ori minimizei theiri impact‖i buti ini
bankingi riski managementi isi definedi asi ―thei logicali developmenti andi executioni ofi ai
plani toi deali withi potentiali losses‖.i Ini commoni practicei riski managementi ini thei bakingi
industryi focusesi toi avoidi ani organization‘si exposurei toi threati ori lossesi andi toi protecti
alli itsi assetsi andi theiri value.i Generallyi bankingi businessi isi commonlyi viewedi asi ai
riskyi business.i Ini economici theoryi iti isi suggestedi thati therei arei twoi economici units,i 1)i
surplusi uniti andi 2)i deficiti unit,i andi financiali institutionsi arei preferredi byi thesei
economici unitsi toi transferi necessaryi fundsi toi eachi other.i Undoubtedly,i thisi procedurei
raisesi thei importancei ofi thei financiali establishmentsi ini thei economy,i buti iti alsoi
possessesi somei risksi ini thesei institutionsi asi well.i Thei wholei purposei ofi thei riski
managementi processi isi toi evaluatei thei potentiali lossesi fori thei banksi ini thei futurei andi
toi takei precautionsi toi deali withi thesei potentiali problemsi wheni theyi occur.i Thei riski
managementi frameworki isi subjecti toi continuousi improvementi asi besti practicei
evolves.i Thei frameworki andi practicesi arei subjecti toi regulari auditi review,i andi arei alsoi
reviewedi periodicallyi byi thei Treasury‘si Riski andi Auditi Committee,i byi thei Controlleri
andi Auditor-General,i thei Commerciali Operationsi Advisoryi Boardi andi byi externali
experts.i Thei riski managementi frameworki setsi outi thei governancei frameworki fori debti

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managementi operations,i includingi thei legislativei provisionsi governingi borrowingi andi

investmenti activities.i Internali operationsi arei governedi byi ani establishedi riski culture,i
bodyi ofi policies,i ethicali guidelines,i definedi responsibilitiesi andi formali delegations,i
segregatedi dutiesi andi reportingi andi performancei managementi requirements.

Credit i risk:

Crediti riski isi definedi asi thei riski ofi lossi ini portfolioi valuei owingi toi thei downgradei ori
defaulti ofi ani institution.i Ini simplei words,i lendingi isi onei ofi thei maini activitiesi
conductedi byi banksi buti wheni thesei creditsi arei noti paidi backi toi thei banki becausei ofi ai
customeri facingi financiali crisis,i thisi causesi partiali crediti riski toi thei banks.i Thisi typei ofi
financiali lossi occursi wheni ai crediti customeri failsi toi payi backi thei banks.i Crediti riski isi
managedi throughi thei crediti screeningi ofi counterparties,i usei ofi crediti exposurei limitsi
andi counterpartyi collaterali obligations.

Marketi risk:

Marketi riski isi definedi asi thei impacti ofi changesi ini interesti rates,i exchangei ratesi ori
otheri marketi variablesi oni portfolioi value.i Marketi riski isi managedi throughi thei usei ofi
Valuei ati Riski limits,i portfolioi sensitivities,i stressi testingi andi stopi lossi limits.i Anyi
pricesi thati arei constantlyi tradedi oni thei financiali marketsi cani bei relatedi toi marketi risk.i
Ini thei theoryi ofi diversificationi somei ofi thei investmenti risksi cani bei diversifiedi awayi
buti thisi isi noti possiblei withi thei rest.i Iti isi unquestionablei thati thei newi opportunitiesi likei
evadingi providei thei chancei fori marketi participantsi toi evadei theiri risk,i buti theni thisi isi
noti entirelyi diversifiedi awayi fromi thei risksi thati arei relatedi toi thei market.

Operationali risk:

Operationali riski isi definedi asi thei riski ofi lossi resultingi fromi inadequatei ori failedi
internali processes,i peoplei andi systems,i ori fromi externali events.i Ini otheri wordsi thei riski
ofi mosti probablei opposingi effectsi oni thei bank‘si financiali resulti andi capitali happenedi
duei toi thei unintentionali ori intentionali errorsi ini banki employees‘i worki isi knowni asi
operationali risk.i Operationali riski cani happeni duei toi inadequatei internali proceduresi
andi processes,i inadequatei managementi ofi informationi andi otheri systemsi andi alsoi
unforeseeablei externali events.i Operationali riski alsoi includesi legali risk.i Operationali
risksi arei managedi ini ai numberi ofi ways.i Controlsi includei policiesi governingi staffi

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behavior,i reportingi andi performancei managementi requirements,i delegationsi andi

accessi controls.

Liquidityi risk:

Liquidityi riski isi definedi asi thei riski ofi noti beingi ablei toi meeti cashi flowi requirementsi asi
thesei cashi flowsi falli due.i Iti isi alsoi knowni toi bei thei riski withi potentiali existencei ofi
opposingi effectsi oni thei bank‘si financiali resulti andi capitali becausei ofi thei inabilityi ofi
thei banki toi meeti thei outstandingi liabilitiesi thati happenedi duei thei withdrawali ofi thei
currenti sourcesi ofi funding.i Iti cani bei duei toi fundingi liquidityi riski ori marketi liquidityi
risk.i Fundingi liquidityi riski isi wheni ai banki isi incapablei ofi raisingi newi fundsi andi
marketi liquidityi riski isi wheni ai banki failsi ini aggravatedi conversioni ofi propertyi intoi
liquidi assetsi becausei ofi marketi disruption.i Liquidityi riski isi managedi byi ensuringi thati
liquidi assetsi arei heldi ini eachi currencyi toi coveri obligations.

Interesti ratei risk:

Interesti ratei riski isi definedi asi ―thei riski ofi possiblei occurrencei ofi adversei effectsi oni thei
bank‘si financiali resulti andi capitali oni accounti ofi bankingi booki itemsi causedi byi
changesi ini interesti rates‖.i Thei interesti ratesi ini marketi arei determinedi byi thei marketi
dynamics.i Thesei days,i changesi ini interesti ratesi arei basedi oni demandi andi supplyi
conditions.i Underi thesei circumstances,i movementsi ofi thei interesti ratesi whichi banksi
arei usingi fori theiri activitiesi alsoi havei effectsi oni thei banksi incomei andi expenses.i
Interesti revenuesi likei loansi andi securityi arei generatedi byi somei ofi bank‘si assets,i
whereasi oni thei otheri hand,i somei liabilitiesi alsoi havei expensesi likei deposits.i Thus,i
thesei changesi ini interesti ratesi alsoi havei ai significanti effecti oni bank‘si revenues.i
Subsequently,i thisi isi calledi interesti ratei risk.

Challenges faced by banking industry:

i i i i

Thei maini challengesi facedi byi bankingi ini Denmarki arei asi follows:-

1)i Politicali interference.

2)i Rulesi andi regulations.

3)i Challengesi toi maximizei efficiencyi ofi thei banksi ini Denmark

4)i Macroeconomici environmenti risk.

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5)i Technologyi risk.

6)i Challengesi ofi electronici paymenti systems.

7)i Criminality.

8)i Cyber-securityi issuesi andi cybercrimes.

9)i Moneyi laundering.

10)i Low-costi customer-orientedi servicesi fori banks.

11)i Regulatoryi pressurei oni thei banks.

12)i Naturali disasters

Corporate governance policy of the banks:

i i i i i

Thei threei maini componentsi ofi thei policyi arei specifici rulesi imposedi viai ai bank'si
conditionsi ofi registration,i guidelinesi oni thei skillsi andi experiencei expectedi ofi thei
boardi ofi directors,i andi requiredi publici disclosurei ofi relevanti information,i suchi asi
detailsi ofi thei individuali directors.

Conditionsi ofi registration:

Generallyi registeredi banksi arei subjectedi toi thei followingi standardi conditionsi ofi
registrations:i Thei standardi conditionsi ofi registrationi requirei ai banki toi havei ai boardi
withi ati leasti fivei directors.i Ai stricti majorityi ofi thei boardi musti bei non-executive,i andi ati
leasti halfi ofi thei boardi musti bei independent.i Ai non-executivei directori isi ai personi whoi
isi noti employedi byi thei bank,i whilei toi bei independent,i ai directori musti meeti certaini
additionali testsi designedi toi ensurei thati theyi arei freei fromi anyi businessi ori otheri
associationi thati couldi materiallyi interferei withi thei exercisei ofi theiri independenti
judgment.i Ati leasti halfi ofi thei independenti directorsi oni thei boardi musti alsoi bei
ordinarilyi residenti ini Denmark.

Thei criteriai fori thei independencei isi thati ai personi isi independenti ini relationi toi thei
registeredi banki ifi thati personi doesi noti controli ori havei substantiali impacti oni thei
registeredi bank,i thei personi isi noti ani involvedi withi ani entityi whichi controlsi ori havei
significanti influencei overi thei registeredi bank.i Thei personi isi noti shouldi noti bei
employedi ori everi havei hadi employedi asi ani executivei capacityi ini anyi otheri registeredi

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bank,i unlessi thei personi hasi beeni employedi andi servingi oni thei boardi fori ati leasti threei
years.i Thei personi shouldi noti bei ai directioni ofi anyi sisteri companyi ofi thei registeredi
banki asi well.i Thei personi isi noti currenti principali ofi materiali professionali adviseri ori
materiali consultanti toi thei registeredi bank.i Thesei definitioni ofi independencei arei seti
withi thei intentioni toi ensurei thati thei ―independenti director‖i isi freei fromi anyi businessi ori
otheri associationi thati couldi materiallyi interferei withi thei exercisei ofi theiri independenti
judgement.

Rulesi andi regulation:

Thei policyi includesi guidelinesi thati seti outi thei Reservei Bank'si expectationsi arei asi
follows:

 Alli boardi membersi shouldi bei andi remaini qualifiedi byi trainingi fori theiri
positions.i Shouldi havei cleari understandingi ofi theiri parti ini corporatei
governancei andi bei ablei toi buildi comprehensivei andi impartiali judgementi abouti
thei affairsi ofi thei bank.
 Thei boardi shouldi possessi appropriatei experience,i competenciesi andi personali
qualitiesi includingi professionalismi andi personi integrityi fori bothi individuali
boardi membersi andi collective.
 Thei boardi cooperativelyi shouldi havei sufficienti informationi andi experiencei
relatedi toi eachi ofi thei materiali financiali undertakingsi thei banki intendsi toi
achievei ini orderi toi enablei effectivei governancei andi oversight.
 Thei auditi committeei shouldi asi ai wholei havei recenti andi relevanti experiencei
andi shouldi possessi ai collectivei balancei ofi skillsi andi experti knowledge.
 Therei shouldi bei ati leasti onei memberi ini thei auditi committeei whoi shouldi havei
appropriatei qualificationsi andi experiencei ini financei andi accounting.

Disclosure:

Ai registeredi banki requiredi toi complyi withi thei reservei bank‘si requirementsi fori publici
disclosure.i Thesei requirementsi ofi publici disclosurei arei seti byi Orderi ini Council.i Thesei
requirementsi includesi thati alli registeredi banks,i ini theiri fulli yeari disclosurei statement,i

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musti publishi informationi ofi eachi directori (includingi namei ofi thei director,i theiri
occupation,i theiri technicali ori professionali qualifications,i theiri countryi ofi residence,i ifi
theyi arei executivei ori ifi theyi arei independent),i ai statementi toi showi ifi thei registeredi
banki isi coveringi itsi auditi mattersi byi ai boardi auditi committeei ori byi otheri separatei
boardi committeei (ifi soi theni howi manyi membersi thisi committeei havei ini total,i howi
manyi independenti directorsi arei therei andi howi manyi arei directorsi arei otheri thani
independent)i andi alsoi ai policyi ofi thei boardi fori avoidingi conflictsi ofi interesti whichi
mayi arisei fromi anyi ofi thei directors‘i personal,i professionali ori businessi interest.i Ini thei
registeredi bank‘si halfi yeari andi offi quarteri disclosurei statements,i thei banki musti statei
whetheri therei havei beeni anyi changesi ini thei compositioni ofi itsi boardi sincei thei balancei
datei ofi itsi mosti recenti fulli yeari disclosurei statement,i andi ifi soi thei naturei ofi thei
changes.

Tradingi processi ofi bankingi system:

Alli bankingi systemi ini Denmarki isi supervisedi byi Thei Reservei Banki ofi Denmark.i Iti acti
asi thei centrali banki ofi Denmarki andi alsoi formulatesi andi implementsi monetaryi policy, i
monitorsi banksi andi managesi currencyi issuance.i Thei Reservei Banki ofi Denmarki alsoi
grantsi bankingi licensesi andi operatesi thei Exchangei Settlementi Accounti Systemi
(ESAS).i Furthermore,i clearingi andi settlementi servicesi toi financiali marketsi fori high-
valuei debti andi equitiesi arei alsoi providedi byi thei Reservei Banki ofi Denmark.i Newi
Banksi musti applyi fori separatei licensei fori foreigni exchangei trading,i andi iti isi noti ai
difficulti processi toi goi through.i Denmarki havei 24i registeredi banks.i Iti isi necessaryi fori
alli thei registeredi banksi toi meeti thei minimumi standardsi toi reducei banki failures.i Morei
thani 90%i ofi thei country‘si bankingi assetsi arei entitledi toi overseas.i TSBi Banki Limitedi
ofi Newi Plymouth,i SBSi Bank,i andi Kiwii Bank,i ai government-establishedi banki
operatedi arei thei onlyi domesticallyi ownedi banks.i Moreover,i financei companies,i
insurancei companiesi andi buildingi societiesi arei engagedi ini capitali formationi andi
investment.i Thesei institutionsi arei regulatedi byi thei Securitiesi Commission.i Thei
servicesi providedi byi banksi ini Denmarki includesi customaryi retaili andi commerciali
businessi whichi includesi depositoryi services,i lendingi andi foreigni exchangei services.i
Correspondenti relationshipsi withi banksi aroundi thei worldsi arei maintainedi byi thesei
banks.i Almosti alli restrictionsi oni thei number,i activitiesi andi ownershipi ofi banksi
operatingi ini Denmarki isi endedi byi thei Governmenti ofi Denmark‘si liberalizationi ofi thei
bankingi system.i Therei arei noi limitsi oni thei numberi ofi licensesi grantedi andi foreign-

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ownedi institutionsi havei fulli equalityi withi nationallyi basedi firms.i Generally,i fori bothi
managementi andi depositorsi thesei banksi operatei oni ani ―ati youri owni risk‖i policy.i Thei
depositsi byi thei customersi arei noti coveredi byi anyi systemi ofi depositors‘i insurance.i

 Derivativesi system
 Brokers
 Commodityi solution
 Electronici tradingi network
 Liquidityi managementi system
 Fixedi incomei system.

Date 4/10/2020