COPENHAGEN May 12 Danish banks will likely continue to buy Danish covered bonds in large scale if last week's proposal from the European Commission comes into force in 2015, the banking association said on Monday.
The European Commision last week proposed that Danish mortgage bonds should be classified as highly liquid assets, meeting a key demand from the country's financial industry and avoiding a potentially major disruption for the country's financial sector.
"The draft looks reasonable, taking into account that it is a compromise among different interests," Morten Frederiksen, head of the regulation department at the Danish Bankers Association told Reuters.
"We expect that Danish banks will continue to the same extent as now to buy mortgage bonds in large quantities to meet the bulk of the new regulatory requirement," he added
The Danish covered bonds market is Europe's second biggest and credit institutions held mortgage bonds with a maturity up to five years worth 1,058 billion crowns ($194.99 billion) at the end of March.
The Commission proposed that Danish mortgage bonds should be in the same class as government bonds and may account for up to 70 percent of an individual bank's liquidity requirement.
The European Banking Authority (EBA) recommended in December to the Commission, that all mortgage bonds should be placed in a class beneath government bonds and could cover only up to 40 percent of banks' liquidity buffers.
The Danish government opposed the proposal and successfully lobbied Brussels to modify the EBA's recommendation because the original proposal would have disrupted the financial industry. ($1 = 5.4258 Danish Crowns) (Reporting by Erik Matzen; Editing by Balazs Koranyi)