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International Monetary Fund

This technical note describes the stress testing exercises carried out for the Danish commercial banking system and the insurance sector. The tests were conducted as part of the Financial Sector Assessment Program for Denmark and were developed in collaboration with the Danish Financial Supervisory Agency (DFSA) and Danmarks Nationalbank (DNB). Two approaches—bottom-up and top-down—were employed in the analysis. Results of the stress test show that under changing macroeconomic conditions, credit risk could materialize, causing a substantial deterioration in banks’ results.

International Monetary Fund. Monetary and Capital Markets Department

This paper discusses findings of the Report on Observance of Standards and codes for Denmark. Denmark has a high level of compliance with the Basel Core Principles for Effective Banking Supervision. The Danish Financial Supervisory Authority (DFSA) has the appropriate legal authority to carry out supervision effectively, and its risk based approach has focused well on the key elements of risk within its banking system. Its powers and supervisory approach have evolved significantly since the recent global crisis, and the DFSA emerged as a proactive supervisor. Its overall supervisory approach is sound, and the compliance with the credit-risk and capital adequacy related principles is uniformly high.

International Monetary Fund. Monetary and Capital Markets Department

This paper discusses key findings of the Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision (BCPs) on Denmark. Denmark has a high level of compliance with the BCPs. The Danish Financial Supervisory Authority has appropriate legal authority to carry out supervision effectively, and its risk-based approach has focused well on the key elements of risk within its banking system. The compliance with the credit-risk related principles is uniformly high and the provisioning policies have been adequately enhanced. Its overall supervision is also considered sound, although resource constraints result in an extended supervision cycle and some risk areas receiving insufficient attention.

International Monetary Fund

This Selected Issues paper analyzes the current account performance of Denmark in 1993–98. The paper presents a brief review of structural features of the external current account. It looks at the decline in export market share and concludes that it reflects primarily cyclical factors and the unwinding of an unsustainable export market gain immediately after the German unification. The paper also examines implications for fiscal policy of Denmark’s decision to remain for the time being outside the European Monetary Union.

International Monetary Fund
This technical note describes the stress testing exercises carried out for the Danish commercial banking system and the insurance sector. The tests were conducted as part of the Financial Sector Assessment Program for Denmark and were developed in collaboration with the Danish Financial Supervisory Agency (DFSA) and Danmarks Nationalbank (DNB). Two approaches—bottom-up and top-down—were employed in the analysis. Results of the stress test show that under changing macroeconomic conditions, credit risk could materialize, causing a substantial deterioration in banks’ results.
International Monetary Fund. Monetary and Capital Markets Department
This Technical Note discusses the results of stress testing of Finland’s banking system. Despite high capitalization levels, there are important vulnerabilities in the Finnish banking system. Near-term risks are largely tilted to the downside, stemming from both external and domestic sources. A sharper-than-expected global growth slowdown would be a drag on Finland’s export and GDP growth. Although so far high compared with the rest of the euro area banks, Finnish banks’ profitability is facing challenges from the low interest rate environment and the low economic growth. Vulnerabilities include funding risks, contagion risks, and challenges related to long-term profitability.
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses findings of the Report on Observance of Standards and codes for Denmark. Denmark has a high level of compliance with the Basel Core Principles for Effective Banking Supervision. The Danish Financial Supervisory Authority (DFSA) has the appropriate legal authority to carry out supervision effectively, and its risk based approach has focused well on the key elements of risk within its banking system. Its powers and supervisory approach have evolved significantly since the recent global crisis, and the DFSA emerged as a proactive supervisor. Its overall supervisory approach is sound, and the compliance with the credit-risk and capital adequacy related principles is uniformly high.
International Monetary Fund. Monetary and Capital Markets Department
COVID-19 pandemic: The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic, so this Technical Note (TN) does not assess the impact of the crisis or the recent crisis-related policy measures. Nonetheless, given the FSAP’s focus on vulnerabilities and policy frameworks, the findings and recommendations of the TN remain pertinent. The Danish Financial Supervisory Authority (DFSA) has improved standards in its oversight of banking and insurance sectors since the last FSAP. Nevertheless, risks persist, both in traditional forms, and new areas, such as cyber risk, AML, and innovative market entrants. This note, selects topics to meet evolving supervisory challenges and the expectation that the international supervisory standards themselves will likewise continue to rise.
International Monetary Fund. Monetary and Capital Markets Department
This paper discusses key findings of the Detailed Assessment of Observance of the Basel Core Principles for Effective Banking Supervision (BCPs) on Denmark. Denmark has a high level of compliance with the BCPs. The Danish Financial Supervisory Authority has appropriate legal authority to carry out supervision effectively, and its risk-based approach has focused well on the key elements of risk within its banking system. The compliance with the credit-risk related principles is uniformly high and the provisioning policies have been adequately enhanced. Its overall supervision is also considered sound, although resource constraints result in an extended supervision cycle and some risk areas receiving insufficient attention.
Jennifer Blouin, Harry Huizinga, Mr. Luc Laeven, and Gaetan Nicodeme
This paper examines the impact of thin capitalization rules that limit the tax deductibility of interest on the capital structure of the foreign affiliates of US multinationals. We construct a new data set on thin capitalization rules in 54 countries for the period 1982-2004. Using confidential data on the internal and total leverage of foreign affiliates of US multinationals, we find that thin capitalization rules significantly affect multinational firm capital structure. Specifically, restrictions on an affiliate’s debt-to-assets ratio reduce this ratio on average by 1.9%, while restrictions on an affiliate’s borrowing from the parent-to-equity ratio reduce this ratio by 6.3%. Also, restrictions on borrowing from the parent reduce the affiliate’s debt-to-assets ratio by 0.8%, which shows that rules targeting internal leverage have an indirect effect on the overall indebtedness of affiliate firms. The impact of capitalization rules on affiliate leverage is higher if their application is automatic rather than discretionary. Furthermore, thin capitalization regimes have aggregate firm effects: they reduce the firm’s aggregate interest expense but lower firm valuation. Overall, our results show than thin capitalization rules, which thus far have been understudied, have a substantial effect on the capital structure within multinational firms, with implications for the firm’s market valuation.