Danish FSA publishes guidelines on solvency need

The Danish FSA has published new guidelines on the assessment of solvency need for banks. Before publication, Danish banking industry organisations were consulted.

The guidelines are based on the Danish FSA’s existing practice and set out clear terms for the solvency need in a number of areas, such as risk of losses from lending, customers with financial difficulties, large exposures, and exposure concentration to a single sector.

“We hope the guidelines will be conducive to greater transparency regarding our expectations on how banks assess their solvency need. The guidelines reflect our current approach and practice”, said Ulrik Nødgaard, Director General of the Danish FSA.

After the consultation, the Danish FSA accommodated a number of specific technical suggestions made by the industry. These include stress levels concerning fall in share prices and reduced falls in revenues from bank fees and charges etc. However, the guidelines on credit risk and the probability of losses on lending remain unchanged.

“Credit risk is the core element in the solvency need. We have stated that we have no wish to tighten the capital requirements at this time, while the sector is still under the effects of the economic crisis, and we stand by this. On the other hand, it would be irresponsible to slacken the requirements”, said Ulrik Nødgaard.

Read the guidelines here (in Danish)

Created  18.01.2010  Edited  18.01.2010