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BLOOMBERG
Denmark’s government is ready to tackle liquidity shortages that have hit the world’s biggest market for mortgage-backed covered bonds, as it addresses risks that both the industry and investors warn are a serious side-effect of global regulation.
Business Minister Troels Lund Poulsen told Bloomberg he will back a proposal by a government-appointed panel to stop forcing mortgage lenders to offer loans based on two benchmark interest rates, Cita and Cibor. Freeing lenders to limit their loan offering to only one of the two rates will reduce the number of series and increase liquidity. But the minister says he’s also willing to consider more steps as he pledges to fight the Basel Committee on Banking Supervision on plans he warns could “destroy†Denmark’s mortgage market.
The government-appointed panel’s proposal is “good†and “we’re going to deliver on it,†Poulsen said in an interview in Copenhagen. The recommendation affects about a fifth of Denmark’s $420 billion mortgage bond market. But “we clearly need to have a more thorough discussion†to address broader liquidity issues, he said.
There’s plenty of evidence that buying and selling top-rated Danish mortgage bonds is getting harder. According to a survey of investors released in August, trades in Danish mortgage bonds that once took as little as two minutes can now drag out a full day. When big trades go through, price disruptions are about four to five times what they were a decade ago.
Scandinavia’s two biggest banks, Danske and Nordea, are only doing two-thirds of the repo agreements they used to do in mortgage bonds. Market participants “have either disappeared, or their influence on the market has been reduced,†according to Peter Andersen, head of markets at Jyske Bank and a member of the Danish Securities Dealers Association.