The Supervisory Diamond for banks

The Supervisory Diamond for banks sets up a number of benchmarks to indicate banking activities which initially should be regarded as having a higher risk profile.

The Supervisory Diamond stipulates a number of special risk areas, stating limit values which banks should keep to from the end of 2012. 

The five limit values are:

• Sum of large exposures (less than 125% of total capital)
• Lending growth (less than 20% per year)
• Commercial property exposure (less than 25% of total loans)
• Stable funding (lending/working capital - less bond issuance with remaining maturity less than 1 year). Limit value; less than 1
• Excess liquidity coverage (greater than 50%)

The limit values have been set so that on the one hand they counteract excessive risk-taking, and on the other hand they make it possible for resilient banks to carry out profitable banking activities and offer the credit required to undertakings and households.  Some of the risk areas in the Supervisory Diamond may be difficult for banks to change in the short term. Therefore, the Danish FSA has made of point of phasing in the Supervisory Diamond up to the end of 2012, after which the Danish FSA will implement systematic monitoring of the benchmarks in the Supervisory Diamond.

The Supervisory Diamond was introduced in a letter to the board of directors and the board of management of all banks in Denmark at the end of June 2010. Banks which, on the basis of reporting as at the end of 2009, breached one or more of the benchmarks, were informed of this at the same time. The Supervisory Diamond was adjusted in december 2010.

• See the translated version of the letter of December 2010 (PDF)
• See the translated version of the letter of June 2010 (PDF)