Objects of the company
The Financial Stability Company was established in October 2008 as part of an agreement between the Danish State and the Danish financial sector (the Private Contingency Association) on a scheme to secure financial stability in Denmark. This agreement was reached in response to the international financial crisis and the impact it was having on the financial sector.
The object of the Company is to secure and cover claims from depositors and other unsecured creditors of the banks and bank branches that are members of the Private Contingency Association to the extent that such claims are not otherwise covered. Accordingly, the Danish State and the financial sector provide a safety net that safeguards the full amount of claims by all banking customers and other unsecured creditors against Danish banks and the Danish branches of foreign banks, as far as depositors are concerned. Thus, all depositors will be safeguarded, as will the banks with respect to loans granted among themselves.
The Private Contingency Association provides a guarantee of DKK 10 billion to cover losses in the Financial Stability Company. In addition, the Private Contingency Association pays an annual guarantee commission to the Financial Stability Company conforming to market standards in the amount of DKK 7.5 billion for two years. After the scheme has terminated, the value of the Financial Stability Company will be calculated and any losses determined. If the estimated losses, including interest on capital injected into the Financial Stability Company, exceed the guarantee amount provided, the Private Contingency Association shall cover any additional losses up to DKK 10 billion by means of an increased guarantee commission. The total contribution from the Private Contingency Association in the form of guarantee commission and guarantee may thus total up to DKK 35 billion over the two-year period.
The scheme runs until 30 September 2010. From this date onwards, a three-year transition scheme will be introduced with respect to the government guarantee provided in the Agreement on Financial Stability, and the cover provided by the Danish Depositors’ Guarantee Scheme will be raised to DKK 750,000 with effect from 1 October 2010.
On 4 February 2009, the Financial Stability Company was authorised to enter into agreements for the provision of a government guarantee on behalf of the Danish State.
The Financial Stability Company may, on the basis of an application, enter into agreements for the provision of individual government guarantees for unsubordinated, unsecured debt and for the provision of supplementary collateral (junior covered bonds) with a maturity of up to three years by institutions issuing covered bonds.
Applications may be submitted by Danish banks, subsidiaries of foreign banks operating in Denmark or mortgage credit institutions complying with the solvency requirement of 8%, the institution’s individual solvency needs and any higher individual solvency requirements fixed by the Danish FSA.
Banks being granted a guarantee become subject to certain restrictions, including in respect of dividend payments, capital reductions and implementation of share-option programmes or similar programmes in favour of the bank’s executive management.
Application should be made on a specific application form found under “Individual guarantees”.
The scheme applies to loans issued on or before 31 December 2010.
The Financial Stability Company is state-owned through the Danish Ministry of Economic and Business Affairs.