Capital Structure for Systemically Important Financial Institutions in Denmark: A Study of Danish Systemically Important Financial Institutions’ Capital Structure and the Need for Regulation

Christian Jørgensen & Michael Goldmann

Student thesis: Master thesis


During the last decades there has been an increased focus on capital regulation for banks and other financial institutions especially during the aftermath of the financial crisis. After the introduction of Basel III there has been an increase in capital regulations in the banking sector which have led to higher funding costs. The higher funding costs have had a negative impact on the GPD in the affected countries including Denmark but it has been stated that the net gain has been positive due to a reduced risk of a systemic banking crisis. This paper investigates why the level of equity is low for Danish SIFI-banks and analyzes the need for further regulations. We use statistical methods to test for macroeconomic and company specific factors and empirical studies to test for the degree to which traditional capital structure theory can explain the choice of capital structure. We investigate the Danish SIFI-banks’ current position in relation to the Basel III capital requirements with a comparison to the Swedish SIFI-banks and analyze the funding costs for Danish SIFI-banks if changes are made to the capital structure. Finally, we analyze the impact on GPD for Denmark according to the changes estimated for the funding costs. In this paper we conclude that the low degree of equity is due to the uniqueness of the banking sector and also due to equity financing being more expensive compared to debt financing. Furthermore, we conclude that Danish SIFI-banks are well capitalized with a low degree of risk for financial distress and that there is no current need for higher capital requirements. If additional regulations have to be made it should not be in the form of capital requirements. This paper contributes to the current study of capital regulations of the banking sector with focus on Denmark particularly the Danish SIFI-banks. In addition, it contributes to the ongoing discussion of further regulations.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2017
Number of pages180