Front Matter Page
IMF Country Report No. 20/254
DENMARK
FINANCIAL SECTOR ASSESSMENT PROGRAM TECHNICAL NOTE—SYSTEMIC LIQUIDITY
August 2020
This Technical Note on Systemic Liquidity for the Denmark FSAP was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member country. It is based on the information available at the time it was completed in July 2020.
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Front Matter Page
DENMARK
FINANCIAL SECTOR ASSESSMENT PROGRAM
TECHNICAL NOTE
SYSTEMIC LIQUIDITY
July 15, 2020
COVID-19 pandemic: The Financial Sector Assessment Program (FSAP) work was conducted prior to the COVID-19 pandemic, so this Technical Note 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, many of the FSAP’s findings and recommendations remain pertinent.
Prepared By
Monetary and Capital Markets Department
This Technical Note was prepared by IMF staff in the context of the Financial Sector Assessment Program in Denmark. It contains technical analysis and detailed information underpinning the FSAP’s findings and recommendations. Further information on the FSAP can be found at http://www.imf.org/external/np/fsap/fssa.aspx
Contents
Glossary
EXECUTIVE SUMMARY
INTRODUCTION
STRUCTURE OF DENMARK’S KEY FUNDING MARKETS
A. Money Market and FX Markets
B. Interest Reference Rates
C. Sovereign Bond Markets
D. Covered Bond Markets
E. Regulation Related to Liquidity Risk
DANMARKS NATIONALBANK’S LIQUIDITY MANAGEMENT
A. Danmarks Nationalbank’s Standard Operational Framework
B. Danmarks Nationalbank’s Approach to Provide Liquidity in Times of Stress
KEY ISSUES OF RELEVANCE TO SYSTEMIC LIQUIDITY
A. The Functioning of Key Funding Markets
B. The Functioning of Money Markets and Foreign Exchange Markets
C. Danmarks Nationalbank’s Standard Operational Framework
D. Danmarks Nationalbank’s Non-Standard Operational Framework
References
FIGURES
1. FX and Money Markets
2. Bond Markets
3. Key Rates and Liquidity Conditions
TABLES
1. Key Recommendations
2. Liquidity Events and Instruments
APPENDIX
I. Danish Covered Bonds
Glossary
| €STR |
Euro Short-Term Rate |
| ABS |
Asset-Backed Security |
| BMR |
Benchmarks Regulation |
| BRRD |
Bank Recovery and Resolution Directive |
| CD |
Certificate of Deposit |
| Cibor |
Copenhagen Interbank Offered Rate |
| CITA |
Copenhagen Interbank Tomorrow/Next Average |
| CP |
Commercial Paper |
| DESTR |
Danish Short-Term Rate |
| DFSA |
Finanstilsynet |
| DKK |
Danish Kroner |
| EEA |
European Economic Area |
| EEC |
European Economic Community |
| ELA |
Emergency Liquidity Assistance |
| ESMA |
European Securities and Markets Authority |
| ESRB |
European Systemic Risk Board |
| EU |
European Union |
| FMI |
Financial Market Infrastructure |
| FX |
Foreign Exchange |
| GDP |
Gross Domestic Product |
| GFC |
Global Financial Crisis |
| HQLA |
High-Quality Liquid Asset |
| IMF |
International Monetary Fund |
| IOSCO |
International Organization of Securities Commissions |
| LCR |
Liquidity Coverage Ratio |
| Libor |
London Interbank Offered Rate |
| LOLR |
Lender-of-Last-Resort |
| LTV |
Loan-to-Value |
| MoF |
Ministry of Finance |
| MoU |
Memorandum of Understanding |
| NBFI |
Nonbank Financial Institution |
| NSFR |
Net Stable Funding Ratio |
| OECD |
Organization for Economic Co-operation and Development |
| OMO |
Open Market Operation |
| OTC |
Over-The-Counter |
| PD |
Primary Dealer |
| RMBS |
Residential Mortgage-Backed Security |
| T-bill |
Treasury Bill |
| U.K. |
United Kingdom |
| U.S. |
United States |