By Teis Jensen and Jacob Gronholt-Pedersen
COPENHAGEN, Sept 25 – Denmark has bolstered defences against shocks to its financial system after a risk-assessment body said the sector’s stability could be threatened by the Danske Bank money laundering scandal.
Danske Bank’s CEO resigned last week after an inquiry revealed that 200 billion euros ($235 billion) of payments had been moved through its Estonian branch over a period of eight years, many of which the bank said were suspicious.
The case is a risk for Denmark’s entire financial sector, the Systemic Risk Council, which monitors threats to the stability of the country’s financial system, said on Tuesday.
It advised the government to double the cash cushion financial firms must hold to protect against economic shocks, to 1 percent of lending, partly because of the Danske Bank case and partly because of increasing risks in banks’ overall lending.
“The Danish financial system is highly affected by developments and risk perception in international markets. That is why the Danske Bank money laundering case poses a risk to the entire sector and to Denmark’s international reputation,” the council said.
The warning was heeded by the Government, which quickly raised the buffer to 1 percent with effect from Sept. 30.
Business minister Rasmus Jarlov, meanwhile, said that Denmark’s Financial Services Authority (FSA) could have been more critical in its examination of Danske Bank.
“I don’t understand that the authorities in Denmark and in Estonia have not reacted stronger to the many warnings that there have been,” Jarlov told an open parliament committee meeting on Tuesday.
He said that the FSA’s reopened investigation of the case would look at whether the bank could be held responsible for having given wrong information to the regulator and that he is ready to assign the ressources necessary to get to the bottom of the case.
The bank’s management was on Tuesday invited by parliament’s business committee to explain its actions to an open hearing.
Under Danish law no one is obliged to participate in public hearings or comment under oath at them. The bank has yet to decide whether it will participate, a spokesman said.
The money laundering scandal has also hit Danske Bank’s credibility among Danes, figures from polling firm Voxmeter showed on Tuesday.
The percentage of Danes who find the bank credible fell to 46 percent last week, by far the lowest level since recordings began in 2008 and much lower than peers Jyske Bank and Nordea at 80 percent and 64 percent respectively, Voxmeter said.
Its figures suggest that the bank’s image crisis is worse than after the 2008 financial crisis, when the Danish government had to give a guarantee to the bank’s dollar creditors when international loan markets froze.
“This new case is being seen as a breach of trust by customers, and trust is a strong driver for a bank’s business,” said Voxmeter CEO Christian Stjer.
Weakening investor confidence in the bank could hurt its credit rating, DBRS said on Tuesday.
($1 = 0.8503 euros)
(Editing by Alexander Smith and David Goodman)