Danmarks Nationalbank

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First of all, we would like to point out that the results of the EBA's empirical analysis across asset classes confirm that some covered bonds achieve the same average ranking as government bonds. We agree with this analysis and see no reason to discriminate against such covered bonds based on other criteria. If this finding is taken into account when the Commission decide on the final definition of the LCR in June 2014, Denmark would no longer be classified as a country with insufficient liquid assets.
If Danish covered bonds are not classified as extremely liquid in the Commission’s delegated act, and if the Commission furthermore introduce a cap on the amount of assets of high liquidity and credit quality in the liquidity buffer, we would strongly recommend the introduction of the third deroga-tion in the BCBS to allow additional use of assets of high liquidity and credit quality (e.g. certain covered bonds) in the liquidity buffer. This third derogation could allow banks to hold a more diversified liquidity buffer than mainly government bonds and central bank reserves. Furthermore the use of the derogation could assist in breaking the link between governments and banks.
Both derogation A and B pose difficulties for the conduct of monetary poli-cy in Denmark and the currency peg towards the euro.
The use of derogation A with foreign denominated assets in the buffer is not seen as an appropriate option, since it introduces currency risk.
The use of derogation B – credit lines from the central bank – is not seen as a viable solution either, since Denmark maintains a fixed-exchange rate pol-icy vis-à-vis the euro area.
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First of all, we would like to point out that the results of the EBA's empirical analysis across asset classes confirm that some covered bonds achieve the same average ranking as government bonds. We agree with this analysis and see no reason to discriminate against such covered bonds based on other criteria. If this finding is taken into account when the Commission decide on the final definition of the LCR in June 2014, Denmark would no longer be classified as a country with insufficient liquid assets.
If Danish covered bonds are not classified as extremely liquid in the Com-mission’s delegated act, and if the Commission furthermore introduce a cap on the amount of assets of high liquidity and credit quality in the liquidity buffer, we would strongly recommend the introduction of the third deroga-tion in the BCBS to allow additional use of assets of high liquidity and credit quality (e.g. certain covered bonds) in the liquidity buffer. This third derogation could allow banks to hold a more diversified liquidity buffer than mainly government bonds and central bank reserves. Furthermore the use of the derogation could assist in breaking the link between governments and banks.
Both derogation A and B pose difficulties for the conduct of monetary poli-cy in Denmark and the currency peg towards the euro.
The use of derogation A with foreign denominated assets in the buffer is not seen as an appropriate option, since it introduces currency risk.
The use of derogation B – credit lines from the central bank – is not seen as a viable solution either, since Denmark maintains a fixed-exchange rate pol-icy vis-à-vis the euro area.
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It is stated in the regulation standard that the use of a derogation should not be advantageous to the institutions using the derogation, since it could lead to an uneven playing field between institutions. We would take this oppor-tunity to strongly emphasize that the use of a derogation should not be a dis-advantage either to secure a level playing field. We would in addition stress again that a need for a derogation only arises from, and thereby compensates for, a discrimination possibly introduced by regulation in the first place between assets having otherwise comparable liquidity properties.
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Nationalbanken
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