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Danish to back banks till guarantee passes
October 8, 2008 / 10:29 AM / 9 years ago

Danish to back banks till guarantee passes

COPENHAGEN, Oct 8 (Reuters) - Denmark’s central bank said on Wednesday it would handle any problems with individual banks until parliament approves the government’s deposit guarantee scheme.

“Until the bill has been passed, Denmark’s Nationalbank will take care of any eventual problem with banks as has been the case with Roskilde Bank and others,” the central bank said in a statement, praising the proposed guarantee scheme.

Denmark on Sunday unveiled a government-backed unlimited guarantee on deposits and all of banks’ debt to creditors aside from covered bonds, attempting to shore up savers’ confidence and unfreeze lending between banks.

In return, Danish banks agreed to contribute up to 35 billion crowns ($6.5 billion) over two years to a liquidation fund that could take over distressed institutions. The government will cover losses that exceed that amount.

The government said it would put the agreement to a vote in parliament on Thursday. The bill is expected to pass, as only two far left parties oppose it.

Danish banks, while generally healthy, have been suffering as interbank lending rates soared. A deepening downturn in the Danish real estate market, coupled with a squeeze on liquidity, is threatening some of the dozens of small regional banks that handle the savings of hundreds of thousands of Danes.

In August, Denmark’s central bank effectively nationalised Roskilde Bank ROSK.CO, the country’s eighth-largest lender. Roskilde last month sold off its branches to three competitors.

The central bank also secured liquidity for the tiny Ebh Bank EBH.CO last month.

Reporting by Gelu Sulugiuc; editing by Patrick Graham

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