Den nuværende systemiske risiko i dansk realkredit

Kristoffer Nimb & Morten Olsen

Student thesis: Master thesis


This thesis presents an assessment observing the systemic risk in the Danish mortgage system. After the financial crisis in 2008, the Danish bond market almost froze and therefore it is relevant to analyze the underlying risk within this system. Throughout the thesis, we investigate the risks in the different parts of the system and conclude whether they are systemic or not. Denmark has the highest household debt compared to disposable income within the OECD, including bond debt. Thus, the Danish mortgage market plays a huge part in the Danish economy. Housing finance has changed dramatically during the last two decades, especially with the reintroduction of adjustable rate mortgage loans and interest only loans. The popularity of these loan types rose quickly and to a much higher degree than anticipated, and they now constitute more than half of the outstanding bond debt. With the introduction of these loans, the system becomes much more sensitive to changes in the interest rate, especially compared to the classic well known Danish mortgage market based upon fixed rate bonds including repayment Furthermore, the loans have increased the volatility of housing prices, and had a huge influence on the large increase in housing prices leading up to 2007. Therefore, the loans were partly responsible for the severe consequences of the financial crisis in Denmark. The bond loans finance owner-occupied dwellings, cooperative housing, a large part of the rented housing market, and agriculture. Therefore, the resilience of the mortgage system is very important for Denmark as a whole. Due to the increased awareness of systemic risk, legislators of both the EU commission and the Danish government realized that changes were needed. The EU commissions introduced stricter requirement regarding the capitalization of the financial institutions to make sure that they can withstand another financial crisis by building up capital buffers. In December 2014, the Danish FSA introduced the supervisory diamond for the Danish mortgage institutions to make the system more sustainable and to prevent the escalation of systemic risk factors. The diamond will be fully implemented in 2020. The full effects, therefore, remain to be seen, but so far the mortgage institutions have started to change their lending portfolios. Danish mortgage lending has become increasingly risky during recent years and the present emphasis on bringing down system risk is based on good reason and common sense. During the last year, a broad band of regulations has been implemented making the system somewhat safer. These initiatives seem positive and needed. The regulations are still in their infancy so it remains to be seen in the coming years, whether their intended effects are reached. However, risks still persist in the system and though the level seems somewhat decreasing, we are not home safe yet.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2015
Number of pages136