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Denmark's central bank to back banks until guarantee passes

by Rachel Nixon | October 8, 2008 at 02:52 pm

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Denmark's central bank is to tackle problems with any individual banks until the country's parliament approves a scheme to guarantee deposits.

"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.

It is feared that some of the small regional banks in Denmark may be at risk because of a downturn in the real estate market and a squeeze on liquidity.

Wednesday saw leading central banks make coordinated cuts to interest rates, however the Danish central bank decided to keep its rate at 5.0%.

The bank had just raised the rate by 40 basis points on Tuesday in an unusual unilateral move to counter a weakening of the Danish crown over the last month.

The bank said it would leave rates unchanged 'for the time being,' without elaborating.

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