Denmark unveils plan to avoid bank bankruptcy

Updated: 2011-08-26 06:42


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COPENHAGEN - The Danish government on Thursday unveiled a new plan aiming at protecting sound banks against bankruptcies and facilitating them to acquire those struggling ones.

"It is important that the sector experiences stable conditions in future. Banks are the locomotives of Danish society," Minister of Economy and Business Affairs Brian Mikkelsen was quoted by local media as saying.

Analysts believe bankruptcies would impact the creditworthiness of the entire Danish banking sector and thus make it more expensive for Danish banks to raise capital from foreign lenders.

The new plan, known as Bank Pack 4, is expected to help address this problem.

An expert committee would soon identify "systemic" banks, that is, those of crucial importance to Denmark's economy.

The Danish state would also guarantee liquidity of major banks in the event they take over ailing banks, and financially reward the bank which takes over a failing one, according to the plan.

Moreover, the Finansiel Stabilitet, a state-backed rescue fund for failing banks, can take over the struggling parts of a bank and leave the healthy parts to be acquired by other banks, said the plan.

Fears that bankruptcies could affect more banks here have heightened since the collapse of Amagerbanken in February, and then Fjordbank Mors in June, which became the ninth Danish bank to come under state administration since the financial crisis in 2008.

However, Mikkelsen stressed that Danish taxpayers would not be left picking-up the tab for the new measures, saying that "it is the bank sector itself which will finance everything."

The Danish government, its parliamentary allies and major opposition parties have all agreed to the plan.

Denmark's banking sector remains highly fragmented, with around 100 banks in total. Many of these are small, local and face a cash crunch, as they are finding it difficult to tap funds from the international market.

Furthermore, individual state guarantees to banks were set to expire in 2013, deepening concern about the liquidity position of some banks.

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