(Corrects paragraph 2 to show report was published last month)
COPENHAGEN Jan 9 The Danish market for
"covered" bonds backed by mortgages - Europe's second largest
and important for domestic banks - will suffer if proposed new
liquidity rules for banks and mortgage firms are implemented in
2015, Europe's bank watchdog said.
The planned introduction of the so-called liquidity coverage
ratio (LCR) could affect both pricing and the amount of mortgage
lending to private households, the European Banking Authority
(EBA) said in a report published last month.
"The move ... to a system where these (covered bonds) will
be limited to playing a smaller role will have a detrimental
impact on the Danish covered bond market," the independent EU
authority said in the report.
It said there would not be "any significant regulatory
upside" from the implementation of the rules.
Under proposed new banking rules aimed at strengthening the
financial sector, European lenders will have to hold a so-called
liquidity buffer from 2015.
The buffer is to be made up of top quality assets akin to
cash, such as government bonds, that can be sold easily so that
lenders can withstand short-term shocks unaided by taxpayers.
The buffer, known as a liquidity coverage ratio, will be
phased gradually with full compliance by 2019.
The EBA, however, has recommended to the EU Commission that
Danish covered bonds should not be bracketed in the top tier of
assets. That means banks would only be able to use such
instruments to cover up to 40 percent of the liquidity
requirement instead of 100 percent as is the case with
Danish Minister for Economic Affairs Margrethe Vestager was
critical of the EBA's report saying Danish covered bonds have
proven to be at least as liquid as most government bonds and
said she would travel to other EU-member states and meet with
the Commission to argue her case.
Anders Jensen, the Denmark boss of Nordic banking group
Nordea, told Reuters in December that if the European
Commission decided to follow the EBA's recommendation it would
impact the whole Danish economy.
He said the supply of Danish government debt was not big
enough to meet the liquidity requirement.
The Commission is supposed to decide on whether to adopt the
planned LCR-rule by the end of June at the latest.
In October 2013, Danish banks held 932 billion Danish crowns
($170 billion) in covered bonds, around a third of the
outstanding total of 2.7 billion.
Nykredit is the biggest mortgage lender in
Denmark, while Realkredit Danmark, a unit of Danske Bank
, is the second biggest.
($1 = 5.4857 Danish crowns)
(Reporting by Erik Matzen; Editing by Mark Potter)