FIH has been involved in the Danish government’s various bank package schemes
Until now Danish banks could participate in different government bank package schemes. Below you can read about the schemes and obtain an overview of their content.
Bank Package I
Under this scheme, which ended on 30 September 2010, all depositors and lenders (with the exception of subordinated debt lenders) were covered by a general Government Guarantee – irrespective of the size of their loan or deposit.
Bank Package II
In June 2009, FIH entered into an agreement with the Danish Government regarding a hybrid core capital injection of DKK 1.9 billion according to the Danish Act on State-Funded Capital Injections. The captial injection was repaid in July 2012.
Bank Package III
With effect from 1 October 2010, the Danish Act on Financial Stability was amended inter alia to allow for a controlled winding-up of a distressed bank through the special public limited company established by the Danish Ministry of Economic and Business Affairs, Finansiel Stabilitet A/S (Financial Stability Company), CVR no. 30515145. This scheme is voluntary and contains no general state guarantee of creditors and is referred to as “Bank Package III”.
If the Danish Financial Supervisory Authority (the Danish FSA) sets a deadline by which a bank must meet the Danish capital adequacy requirements, the bank will be required to inform the Danish FSA as to whether it will use the controlled winding-up procedures or will go through the traditional bankruptcy procedures as established under Danish law.
At the extraordinary general meeting of FIH, held on 6 January 2011, FIH decided not to express any opinion as to whether a bank should apply for winding-up under the winding-up scheme provided by the Danish Act on Financial Stability.
The Guarantee Fund will provide a loss guarantee to the Financial Stability Company if a distressed bank is subject to controlled winding-up through the Financial Stability Company. The Danish banks have contributed committed undrawn funding to the Guarantee Fund and are further obliged to contribute to the Guarantee Fund up to a maximum equalling 2 per thousandth of the bank’s total deposits (indlånsmasse) per accounting year if the committed funding should become depleted. The loss guarantee will cover the Financial Stability Company’s losses arising as a result of the funding and liquidity that the Financial Stability Company provides for the purpose of winding-up a distressed bank under the new controlled winding-up procedure.
The intention of the new winding-up procedure is to wind-up a distressed bank faster than the traditional bankruptcy procedures. Furthermore, the scheme would allow the customers to continue to operate their accounts and credit cards in a new bank established by the Financial Stability Company after taking over all assets of the distressed bank.
In connection with the transfer, a preliminary valuation of the assets will be made by the Financial Stability Company. Here, the assets including commitments are valued on the basis of a winding-up scenario. As part of the agreement with the Financial Stability Company, the continuing bank will take over certain unsubordinated liabilities for an amount equal to the estimated value, which corresponds to a preliminary dividend fixed at such time. The final dividend will be fixed at a later stage, and any surplus following the completion of the winding-up will be paid to the creditors in the bankruptcy order.
The Bank Package III procedures do not alter the risk for the creditors, which is that under both the Bank Package III procedures and the traditional bankruptcy procedures, the creditors may lose part of their claims.
Bank Package IV
The fourth bank package incorporates a compensation scheme making it more attractive to take over a distressed bank. The objective is to assist a private and/or sector solution without imposing losses on senior debt and other simple claims. If no solution is achievable Bank Package III could be utilised.
Bank Package V
In March 2012 the fifth bank package "The Development Package" was introduced. The packages consists of three elements a) possibility for banks to transfer commercial real estate to Financial Stability on a case-by-case basis, b) establishment of an agricultral financial insitution to assist in stabilising the agricultural secot and a number of small banks with wubstantial agricultural exposures and c) strengthening of government growht and export financing schemes to the corporate sector. Subsequently FIH sold its property related loans to Financial Stability. The sale was completed on 2 July 2012.