Denmark pushes for compromise on bank liquidity

Banks in Europe may be allowed to use covered bonds to meet about 60% of their liquidity needs as talks move toward a compromise deal that would help avoid the sell-off the industry has warned against.

The threshold being discussed, which is 50% higher than a limit proposed last year by the European Banking Authority, has yet to be signed off on by all parties, Karsten Beltoft, head of the Mortgage Bankers’ Federation, said yesterday. The European Commission is due to announce its decision by next month.

Denmark, home to the world’s largest covered bond market per capita, has signalled it may still push to allow banks to use the securities for more than 60% of their liquid buffers. Lenders in the Nordic nation rely on mortgage-backed covered bonds for about 70% of their liquidity needs.