In or out, Denmark to be affected by EU banking union

Regardless of whether Denmark chooses to join the EU banking union, Danish banks will likely be affected by its new rules and supervision

It is likely that Denmark will join the new banking union that was discussed at last week’s summit of European leaders.

But even if Denmark chose to go the way of the UK and Sweden and opt-out of the new rules and supervision of the union, Denmark’s largest banks would still have to submit to the new regulations.

The new banking union is only compulsory for the 17 Eurozone countries but the remaining eight EU countries are welcome to join it.

PM Helle Thorning-Schmidt (Socialdemokraterne) has argued in favour of a common regulatory body.

“The common bank supervisor will create trust in our financial sector,” Thorning-Schmidt said according to Information newspaper. “It will create security for the banks' customers.”

Members of Thorning-Schmidt's party, as well as other pro-EU parties, have argued, however, that they will not take a position for or against the bank supervisor until the final details have been identified.

The final negotiations to determine the structure of the new banking union will be made next year and only then do the non-EU countries have to formally sign up or opt out.

The European Central Bank (ECB) will be given new powers as a bank union supervisor that can demand problem banks close or re-capitalise if they pose a risk to the economy.

As only Eurozone countries have influence within the ECB, there was concern that non-Eurozone countries would not have sufficient influence over how the union is run. A compromise reached at the summit, however, found a method to give countries that have not adopted the common currency a say.

At first the new supervisor will cover banks with assets of over 223 billion kroner, or 20 percent of their home country’s GDP.

This would mean between five and ten Danish banks would be under its supervision, while the rest would remain under Danish supervision, at least in the beginning.

“The new banking supervisor will probably not be as comprehensive as the current Danish supervisor,” Jesper Ragnvild, a finance professor at Copenhagen Business School, told Information. “But we have seen how lacking supervision in other countries , such as Spain, has been, so it may end up improving the quality of European banking supervision on the whole.”

Ragnvild added that the union will end up indirectly affecting how the largest Danish banks are run, even if Denmark doesn’t join the union, because these banks will have activity in Eurozone countries.

The new bank supervisor is hoped to be up and running from March 2014, at which point the Eurozone countries will be able to turn to the European Stability Mechanism (ESM) bailout fund to help struggling banks instead of having to turn to their own national funds.