Memo

Denmark needs a banking union

Denmark should participate in a european banking community

Summary Denmark needs a European banking union. That is the simple conclusion if one is to analyse Europe’s present financial challenges. Some Danish banks have such large balance sheets today that if they run into any problems it could bring Denmark to its knees as a nation-state. It is in the public’s interest to address this challenge. This is why a European banking union is essential in preventing structural collapses in the financial sector, Think Tank EUROPA determines in this report.
 
The report shows that Denmark is the one country in Europe in which systemically important financial institutions account for the greatest share of gross domestic product, and where the systemically important banks, including Danske Bank, Nordea and Nykredit, have grown too large to be controlled within the framework of the Danish nation-state. Closer cooperation within the EU will create better opportunities to supervise the financial services more effectively and to handle any future banking crises.
 
In addition, it is worth noting that we are witnessing an increasing internationalisation of the financial sector in Denmark. Danish banks are engaging in more international activities and a rising number of foreign banks are operating in Denmark. The central bank of Denmark, Danmarks Nationalbank, has clearly indicated that it is in favour of a banking union, but the Danish Bankers Association (Finansrådet) and the banks themselves remain hesitant. There is a similarly hesitant position in the government and the major right-wing parties, as they would prefer to wait for the results of an EU-wide stress test of the banks later this autumn. Until now, SF is the only party that is clearly in favour of a banking union.
 
However, the banking union will – whether we join it or not – become part of the financial sector’s daily operations. We should therefore do away with the wait-and-see attitude and seek to influence instead. There are already a number of strong arguments as to why Denmark should say yes to the new EU banking union under any circumstances rather than waiting on the sidelines.

Main conclusion
  • The largest Danish banks are so big and systemically important in relation to the Danish economy that the state cannot effectively deal with crashes and potential liquidations if a new financial crisis arises.
  • Danish participation in the banking union will reinforce its control and ability to intervene if a new crisis arises. It will do this partly by taking into account that some of the banks are so big that they can bring the nation-state’s economy to its knees, partly by ensuring better financial stability overall.
  • A banking union will reduce the risk of a deep and prolonged recession in the EU.
  • In a time in which economies are becoming more international, even in the area of financial services, a banking union will ensure more equal and fair competition across borders.
  • In the best case, Danish households will be able to take out cheaper loans if Denmark joins the banking union. In the worst case, the price will not change. No additional expenses are anticipated. 
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