Danish response to the European Commission’s Consultation on the

Structural Reform of the Banking Sector

General comments

Denmark welcomes the general objectives of a reform to establish a sta-ble and efficient banking system. Denmark would like to thank the Euro-pean Commission for the opportunity to contribute to the consultation.In our view it is essential that if a follow up on the report of the High-level Expert Group is considered, the options under consideration must beanalysed carefully, before possible initiatives are proposed.It is in this regard important to keep in mind other regulatory initiatives,which seek to promote some of the same goals as a possible structural re-form. For instance regulation of SIFIs, including in the CRD IV, aim toaddress the potential risks which currently are present concerning sys-temic banking groups. As such, Denmark finds that the appropriate regu-lation on SIFIs would allow for large banks.Finally, Denmark finds it important to keep in mind the outspoken varia-tion of the different national banking sectors across the EU. Denmark ac-knowledges that risks from trading activities incurred significant losses insome countries’ banking sectors during the financial crisis. The Danishexperience from the financial crisis is, however, that credit risk by farwas the most important trigger of losses. Denmark is opposed to a “onesize fits all”-model in relation to a possible banking sector reform. It isessential that possible EU-level initiatives allow for Member States to tai-lor possible regulation to national characteristics of the banking sector.

Detailed comments

1. Problem drivers. Q1: Can structural reforms of the largest and mostcomplex banking groups address and alleviate the problems?The proposal of the High-level Expert Group as to mandatory legal sepa-ration of proprietary trading and other significant trading activities shouldbe further reflected upon. Denmark acknowledges the Consultation as

part of the more in depth analysis of the possible effects, before possibleconcrete initiatives are proposed.Denmark acknowledges that a substantial amount of trading activitiescould increase the risk of losses in a crisis situation. This should lead tothe consideration of initiatives that decrease excessive risk-taking and fo-cuses on competent and efficient risk management.Denmark is therefore of the opinion that further analysis needs to be con-ducted as to the size of the problems in different Member States includingwhether the proposed solutions will be proportional to solve the problemsidentified.Furthermore, Denmark notes that with a proper implementation of theCRD IV and the CRR including regulation on SIFIs and application ofthe macro-prudential powers Member States will come a long way inpreventing the build-up of imbalances and problems like those that par-ticularly the large and complex banking groups faced during the financialcrisis.Finally, the coming Bank Recovery and Resolution Directive will make iteasier to resolve large banks across the EU, which is one of the focus ar-eas in regulation on a structural reform. Any impact assessment of theproposed initiatives of a structural reform therefore needs to take thiscoming regulation into account.2. Subsidiarity. Q2: Do you consider that an EU proposal in the field ofstructural reform is needed? What are the possible advantages or draw-backs associated with such reforms?Denmark welcomes an EU-wide approach to bank regulation and interna-tional coordination. Important and well-coordinated regulative actionsbased on a recommendation from the High-level Expert Group are the re-covery and resolution plans as proposed in the Commission’s Bank Re-covery and Resolution Directive.Denmark assesses that more in depth analyses of the effects of the al-ready implemented regulative actions approaching would be welcomedbefore radical actions such as separation of large banking groups shouldbe proposed.3. Policy options. Q3: Which of the four definitions is the best indicatorto identify systemically risky trading activities? Q4: Which of the ap-proaches is the most appropriate? Q5: What are the costs and benefits?Q6: Should deposit banks be allowed to provide risk management ser-vices?Denmark acknowledges the Commission’s consideration on separation ofrisky trading activities in the large systemically important bankinggroups, considering the structure of the banking sector in some countries.

However, mandatory structural changes of a group are actions whichcould be comprehensive and burdensome, so for the sake of proportional-ity the scope is important.Denmark is opposed to a “one size fits all”-model. As such, Denmarkfinds it is highly important that any possible initiative is proposed in thelegal form of a Directive with minimum harmonisation standards consti-tuting a general framework, in particularly taking into account the vary-ing banking sector structures in the different Member States. This wouldmake it possible for Member States to tailor possible regulation to na-tional characteristics of the banking sector.