Last week the European Commission (EC) announced its approval, under EC Treaty state aid rules, of Denmark’s DKK 100 billion credit package that includes state-funded capital injections into banks and mortgage lenders. The scheme is intended to “restore confidence in the creditworthiness of Danish credit institutions and to stimulate lending to the real economy” by providing assistance to “fundamentally sound” financial institutions.
EU Competition Commissioner Neelie Kroes stated that “[t]he measures provide an effective means to address the risk of a Danish credit crunch in this period of crisis. The EC is satisfied that appropriate safeguards are embedded in the scheme to limit distortions of competition.”
The Danish support package includes a bank recapitalisation scheme which will “enable[s] the State to subscribe hybrid capital qualifying as tier 1 capital.” Additionally under the measure, “[c]apital endowment will be up to a level of 12% of tier 1 capital.” The Danish government has also proposed amendments to the existing guarantee scheme for banks which was approved by the EC in October and extended by the Danish government last month, and sets out to “provide liquidity facilities for banks operating in Denmark and protect depositors and ordinary creditors in case of insolvency.” The EC determined that “the integration of individual guarantees of new loans for up to three years was appropriate and necessary to ensure continued access to medium liquidity for Danish credit institutions.”