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.
Pursuant to the Danish Act on Financial Stability (lov om finansiel stabilitet), the object of the Company is to ensure financial stability in Denmark, including winding-up of distressed banks which decide to be wound up under the Financial Stability Company.
As at 1 October 2010, a new set of rules for winding-up of distressed banks came into force, which means that depositors and other unsecured creditors of distressed banks are no longer ensured full coverage of their claims by the Financial Stability Company under the general state guarantee scheme and that distressed banks are no longer obliged to be wound up under the Financial Stability Company. Thus, each distressed bank may choose to be wound up by the Financial Stability Company or under the general rules on termination of a financial business specified in financial legislation, i.e. according to standard bankruptcy proceedings.
In connection with a possible winding-up of a distressed bank under the Financial Stability Company it is ensured that depositors will not at once note any differences in the practical handling of their banking operations, i.e., depositors may still use credit cards, net bank etc. immediately after the Financial Stability Company has taken over the distressed bank.
As mentioned, an actual state guarantee no longer applies and deposits in Danish banks will thus not be guaranteed in addition to the guarantee provided by the Deposit Guarantee Fund. As at 1 October 2010, the Deposit Guarantee Fund guarantees for ordinary deposits registered in the name of a depositor with an amount corresponding to a net value of up to 100,000 euro. Thus, after 1 October 2010, depositors who have deposited larger amounts in Danish banks may suffer losses if a bank becomes a distressed bank.
The financial basis of the new winding-up rules as at 1 October 2010 is based on the existing guarantee provided by the Deposit Guarantee Fund towards depositors and investors, which is combined with a loss guarantee for any loss suffered by the Financial Stability Company in connection with the winding-up of a distressed bank. The loss guarantee is to be provided by the Deposit Guarantee Fund towards the Financial Stability Company. The new winding-up scheme does not involve any immediate financial risk to the Danish state.
A new winding-up department has been set up under the Deposit Guarantee Fund for the purpose of the loss guarantee. The assets of the winding-up department total DKK 3.2 billion for which the financial sector guarantees.