Denmark’s Rohde concerned by lack of bail-in tool at mortgage banks

National Bank of Denmark governor Lars Rohde expressed concern that Danish mortgage banks will not be covered by bail-in tools, in a speech on October 1.

Mortgage banks are covered by Europe's bank recovery and resolution directive, but the minimum requirement for own funds and eligible liabilities, a standard requiring banks to hold sufficient loss-absorbing capital, does not apply to them. Instead they maintain an additional "debt buffer" of 2% of their lending.

This means bail-in "is not an option", Rohde told the annual meeting of the Association of Danish Mortgage Banks. Without bail-in, it is an "open question" whether banks will be able to meet the expected standards in terms of their resolution plans, he added.

"It would have been better if a minimum requirement for own funds and eligible liabilities had to be set. In a resolution situation it would then have been possible to perform bail-in on uncollateralised liabilities to a sufficient extent to ensure the operation of the mortgage bank," Rohde said.