After a world-record-setting half decade of negative interest rates, Denmark still has a few surprises up its sleeve that show how such a monetary regime works in practice. Though corporate clients need to pay to place their savings with the bank, Danske is struggling to deal with near-record amounts of deposits. Corporate and institutional clients have the biggest placement need, with savings growing 17 percent to 265 billion kroner. That’s a quarter of Danske’s total deposits. The cash adds to the cost of complying with Denmark’s strict liquidity rules.
Denmark imposes stricter liquidity requirements than the rest of the European Union. Banks in the country need to prove they can withstand a three-month funding drought, compared with the one month that applies elsewhere in the EU. Danske had a liquidity buffer of 603 billion kroner at the end of June, after extending the duration of its short-term funding and reducing the need for liquid assets.
Regulators recently began requiring banks to distinguish between cash that firms keep on hand to run their business on a day-to-day basis, and non-operational deposits. The latter of those two categories generates a bigger liquidity buffer requirement, the argument being that such deposits are more likely to be withdrawn if times get tough. Excess client cash is the biggest drag on bank liquidity coverage ratios, according to a December report by the European Banking Authority, which looked at 2015 numbers.