Monetary policy in the countries of the European Economic Community. Institutions and instruments. Supplement 1974. II/213/74

11

/

213/74

E U R O P E A N C O M M U N I T I E S

Monetary Committee

Monetary Policy

in the Countries of the

European Economic Community

Institutions and Instruments

Supplement 1974

Denmark

Ireland

PART ONE

MONETARY POLICY IN DENMARK

Chapter One — Basic Elements of Monetary Policy

Section I — Institutional framework

1

Para I

Monetary and foreign exchange authorities

1

1. Danmarks Nationalbank

1

2.

Government Inspector of Commercial Banks and

Savings Banks

3

3. Capital Market Board

4

Para II

Structure of money and capital market

4

1. Money and capital market institutions

4

a) Commercial tanks

5

(i)

Commercial Bank Act

5

(ii) Bank lending

5

(iii) Deposits in banks

6

(iv) Foreign "business

6

b) Savings hanks

7

(i)

Savings Bank Act

7

(ii) Lending

8

(iii) Deposits

8

c) Post Office Giro

8

d) Mortgage credit institutes

9

e) Other financial institutes

11

Denmarkfs Ship Credit Fund

Industrial Finance Institute

Municipal Credit Institute

f) Insurance companies and pension funds

13

g) Supplementary (Labor Market)

13

Pension Fund and Social Pension Fund

2. The banking system and the capital market

14

3. Private nonr-bank sector’s saving habits

15

Section II - Liquidity

17

Primary money supply

Secondary liquidity

Secondary money supply

Para I

Non-tank sector,s liquid resources

19

1. Definition

19

2. Composition

19

3. Movements

19

4. Factors affecting the money supply

19

Para II

Commercial 'bank liquidity

20

1. Definition and composition

21

2. Movements

22

3. Factors affecting "bank liquidity

23

Para III Liquidity and public finance

23

Chapter Two - Instruments of monetary and foreign exchange policy

Introduction

24

Section I — Refinancing

29

Para I

Official discount rate

29

Para II

Nationalbank credit facilities available to hanks

31

Section II — Control of commercial and savings hank liquidity etc.

38

Para I

Liquidity ratios prescribed hy law

38

Para II

Solvency

39

Para III Danmarks Nationalbank’s deposit agreements with commercial

hanks and savings banks

40

Section III - Regulation of the money and capital market and of

external transactions

41

Para I

Intervention on the money and capital market

41

1

. Money market

41

2. Capital market

43

Para II

Regulation of external transactions

45

1. Foreign exchange regulations

46

a) Current payment

s

46

d) Portfolio investment

47

e) Commercial loans and credits and financial loans

48

f) Residents*accounts abroad and non—residents

1

accounts in Denmark

48

2.

Impact of international capital movements on

economic policy

49

3. Regulations governing the net foreign exchange

position of commercial hanks

49

4

* Nationalbank intervention in the forward market for

foreign exchange

51

Section IV — Direct restrictions on credit

51

Para I

General quantitative restrictions

51

1. Credit ceiling

51

2. Restrictions on local government 'borrowing

53

Para II

Selective credit regulations

53

1. Refinancing of non-profit housing projects and

construction of student dwellings

53

2.

Ship Credit Fund "bonds

53

3. Export credit scheme

53

Annexe 1

Deposit Agreements: Main Features

1965

— 1971

55

Annexe 2

Aims of Monetary and Foreign Exchange Policy

56

Annexe 3

Supervision of Local Government Borrowing

59

Statistical Tables

PART TWO

MONETARY POLICY IN IRELAND

Chapter One — Institutional and Structural Aspects of the Monetary

System

1

Section I — The Institutions

1

Para I

The Monetary Authority

1

Para II

Monetary and financial institutions

3

The principal institutions and their characteristics

4

1. The associated hanks

4

2.

The non— associated "banks

4

3. Hire purchase finance companies

6

4. Building societies

6

5

. Assurance companies

7

6. Credit unions

7

7

. Other financial institutions

7

8.

The money and financial markets

8

Section II - Liquidity

10

Chapter Two - The objectives of monetary policy

13

Para I

General objectives and the "Policy Mix”

13

Para II

Specific monetary policy objectives

14

Chapter Three - The instruments of monetary policy

17

Section I — General purpose instruments

17

Para I

Introduction

17

Para II

Rediscounting and refinancing policy

18

Para III Solvency and liquidity ratios

20

Para IV

Changes in interest rates

22

Para V

Quantitative global restrictions on credit

24

Para II

Selective control of domestic credit

25

Annexe 1

Objectives of monetary policy in Ireland

27

Annexe 2

Controls exercised over Local Authorities in the

field of credit

30

PART THREE

MONETARY POLICY IN THE UNITED KINGDOM

Chapter One — Basic principles of monetary policy

Section I — Institutional framework and structural conditions

Para I

The institutional framework

1

Para II

Structural conditions

3

1.

Structure of the financial intermediaries

3

2. Banking system and capital market

7

3.

The public's habits with regard to investment

12

4.

Importance of financial transactions with foreign

countries

13

Section II — Liquidity

Para I

The liquidity of the economy

15

Para II

Bank liquidity

17

Para III Liquidity and public finances

18

1. Management of cash balances

18

2. Functions of the monetary authorities, and the

ways in which their activities affect the liquidity

of the banks and the economy

18

3. Means by which the Government raises finance

1

9

Chapter Two - Instruments of monetary policy

Development of techniques of monetary policy

22

Section I - Refinancing policy

Para I

General data

23

Para II

Refinancing

24

1. Rediscounting

24

2. Advances against securities

24

Para III Effectiveness of refinancing policy and action through

interest rates

25

Section II — Regulation of bank liquidity

Para I

Minimum reserves policy

26

1. Organisation of the system

26

Para II

Other banking ratios

31

Section III — Control of the money market and of relations with

foreign money markets

Para I

Open—market policy

32

1.

The money market

32

2. Open-market operations

34

Para II

Operations affecting short— term international capital

flows

36

Section IV - Direct action on lending

Para I

Quantitative credit control

38

Para II

Selective credit control

38

Bibliography

S u m m a r y

PART ONE

Monetary Policy Instruments in Denmark

PART TWO

Monetary Policy Instruments in Ireland

PART THREE

MONETARY POLICY INSTRUMENTS

IN

-

1

-C h a p t e r One

I n s t i t u t i o n a l a n d s t r u c t u r a l f r a m e w o r k

of m o n e t a r y a n d f o r e i g n - e x c h a n g e p o l i c y

S e c t i o n I

I n s t i t u t i o n a l f r a m e w o r k

P a r a g r a p h

I

M o n e t a r y and f o r e i g n - e x c h a n g e a u t h o r i t i e s

It is the r e s p o n s i b i l i t y of D a n m a r k s N a t i o n a l b a n k , as

the C e n t r a l B a n k of D e n m a r k , to m a i n t a i n a s o u n d m o n e t a r y

s y s t e m a n d to f a c i l i t a t e a n d r e g u l a t e m o n e y t r a n s a c t i o n s

a n d l e n d i n g a c t i v i t i e s ( D a n m a r k s N a t i o n a l b a n k Act of 7 A p r i l

1936). The N a t i o n a l b a n k is thus the c e n t r a l m o n e t a r y a u t h o r ­

ity of D e n m a r k . T h e B a n k d i s c h a r g e s its r e s p o n s i b i l i t i e s in

c o - o p e r a t i o n w i t h the g o v ernment, n o t a b l y the R o y a l B a n k

C o m m i s s i o n e r (at the p r e s e n t time: the M i n i s t e r of E c o n o m i c

A f f a i r s and the Budget) w h o s u p e r v i s e s the p e r f o r m a n c e of

the duties a s s i g n e d to the B a n k u n d e r the D a n m a r k s N a t i o n a l ­

b a n k A c t .

T h e l e g i s l a t i o n g o v e r n i n g the b u s i n e s s a c t i v i t i e s of

c o m m e r c i a l b a n k s and sav i n g s b anks is a d m i n i s t e r e d by the

M i n i s t r y of Commerce, I n d u s t r y and S h i p ping. T h e s u p e r v i s i o n

of the banks' c o m p l i a n c e w i t h l e g i s l a t i o n has b e e n d e l e g a t e d

to a G o v e r n m e n t I n s p e c t o r of C o m m e r c i a l B a nks a n d S a v i n g s

B a n k s who is r e s p o n s i b l e to the M i n i s t r y of C o m m erce.

In the b e g i n n i n g of 1972

a C a p i t a l M a r k e t B o a r d was

set up to a d v i s e the g o v e r n m e n t on m a t t e r s r e l a t i n g to the

cap i t a l m a r k e t . T h e B o a r d h a s no a d m i n i s t r a t i v e authority.

S i nce 1 9 3 1

1

the m a i n p r i n c i p l e s of f o r e i g n - e x c h a n g e

p o l i c y have b e e n laid d o w n by the gove r n m e n t . In practice,

g u i d e l i n e s are e s t a b l i s h e d a fter c o n s u l t a t i o n b e t w e e n the

go v e r n m e n t a n d D a n m a r k s N a t i o n a l b a n k . T h e p r i n c i p a l e x e c u ­

tive b odies in c harge of f o r e i g n - e x c h a n g e p o l i c y are the

M i n i s t r y of C o m m e r c e and the Bank.

1

. D a n m a r k s N a t i o n a l b a n k

T h e a b o v e m e n t i o n e d D a n m a r k s N a t i o n a l b a n k Act of 7 April

1936 c h a n g e d the status of the B a n k f r o m that of a

joint-- s t o c k c o m p a n y to a s e l f joint-- g o v e r n i n g n o n joint-- p r o f i t instit u t i o n .

T h e B o a r d of D i r e c t o r s has 25 m e m b e r s : E i g h t of th e m

are e l e c t e d by the F o l k e t i n g (parliament) fr o m a m o n g its

members; two (one of w h o m m u s t be a g r a d u a t e in e c o n o m i c s

a n d the o t h e r in law) are a p p o i n t e d by the R o y a l B a n k C o m ­

m i s s i o n e r ; the r e m a i n i n g f i f t e e n m e m b e r s (who m u s t be

t h o r o u g h l y f a m i l i a r w i t h econo m i c life) are e l e c t e d by the

B o a r d of D i r e c t o r s as a whole; in such e l e c t i o n s the B o a r d

is r e q u i r e d to e n sure c o m p r e h e n s i v e r e p r e s e n t a t i o n of e c o ­

n o m i c life, i n c l u d i n g the w o r k e r s e m p l o y e d in e c o n o m i c life,

as we l l as r e p r e s e n t a t i o n of the v a r i o u s parts of the country.

E l e c t i o n s c o v e r p e r i o d s of five years, and m e m b e r s m a y be

r e - e l e c t e d .

The C o m m i t t e e of D i r e c t o r s c o n s i s t s of the two m e m b e r s

of the B o a r d of D i r e c t o r s w h o are a p p o i n t e d by the R o y a l

B a n k C o m m i s s i o n e r and fi v e m e m b e r s e l e c t e d by the B o a r d of

D i r e c t o r s f r o m among its m e m b e r s for p e r i o d s of one year.

The B o a r d of G o v e r n o r s has three memb e r s . T h e C h a i r m a n

is a p p o i n t e d by the K i n g ; the o t her m e m b e r s are n o m i n a t e d

by the C o m m i t t e e of D i r e c t o r s and e l e c t e d by the B o a r d of

D i r e c t o r s .

T h e R o y a l B a n k C o m m i s s i o n e r c hairs the m e e t i n g s of the

B o a r d of D i r e c t o r s , lie is e n t i t l e d to a t t e n d m e e t i n g s of the

C o m m i t t e e of D i r e c t o r s (but in p r a c t i c e he has n o t a v a i l e d

h i m s e l f of this right) and to ask for any i n f o r m a t i o n he m a y

w a n t about the B a n k ’s a c t ivities.

The B o a r d of G o v e r n o r s is p r i m a r i l y r e s p o n s i b l e

for

the B ank's a c t i v i t i e s in the f i e l d of m o n e t a r y p olicy. A l ­

t h o u g h the D a n m a r k s N a t i o n a l b a n k Act v e s t s a wide r a n g e

of a u t h o r i t y in the B a n k in this field, impor t a n t p o l i c y

d e c i s i o n s w i l l in p r a c t i c e be t a k e n o n l y after c o n s u l t a t i o n

b e t w e e n the g o v e r n m e n t a n d the B o a r d of G o v ernors. T h e latter

w i l l also c o n s u l t the o r g a n i s a t i o n s of the c o m m e r c i a l banks

and the sav i n g s banks b e f o r e d e c i s i o n s are t a k e n w h i c h affect

the Bank's r e l a t i o n s to them.

3

-M o n e t a r y p o l i c y is p u r s u e d by w a y of the o f f i c i a l d i s ­

c o u n t rate, by r e g u l a t i n g the l i q u i d i t y of c o m m e r c i a l banks

a n d s avings b a n k s - for i n s t a n c e t h r o u g h the r u l e s g o v e r n i n g

t h e i r b o r r o w i n g s f r o m the B a n k - a n d b y m e a n s of v o l u n t a r y

a g r e e m e n t s b e t w e e n the B a n k and the f i n a n c i a l i n s t i t u t i o n s .

T h e p r i m a r y a i m

of t h e s e a g r e e m e n t s is to a c h i e v e a r a t e of

g r o w t h in b a n k l e n d i n g w h i c h is c o m m e n s u r a t e w i t h the p e r ­

f o r m a n c e of the economy. T h e r e is no l e g a l p r o v i s i o n for

r e g u l a t i o n of the b a n k i n g s y s t e m ' s l i q u i d i t y b y w a y of v a r i ­

able cash r e s e r v e ratios.

C l o s e c o - o p e r a t i o n is also m a i n t a i n e d b e t w e e n the g o v e r n ­

m e n t and the B a n k in the f i e l d of f o r e i g n - e x c h a n g e pol i c y . L e g i s l a ­

tio n g o v e r n i n g t r a n s a c t i o n s in f o r e i g n e x c h a n g e c o mes w i t h i n

the p u r v i e w of the M i n i s t r y of Commerce, but m a n y

a d m i n i s t r a t i v e r e s p o n s i b i l i t i e s ha v e b e e n d e l e g a t e d to the

Bank, w h i c h is also in c h a r g e of the d a i l y q u o t a t i o n of e x c h a n g e

r a t e s and the a d m i n i s t r a t i o n of D e n m a r k ’s o f f i c i a l i n t e r n a ­

t i o n a l l i q u idity.

Finally, D a n m a r k s N a t i o n a l b a n k serves as the b a n k e r of

the government.

2.

G o v e r n m e n t I n s p e c t o r of C o m m e r c i a l

B a n k s and S a v i n g s Banks

C o m m e r c i a l b a n k and s avings b a n k a c t i v i t i e s are g o v e r n e d

b y r e s p e c t i v e l y the C o m m e r c i a l B a n k Act of 15 J u n e 1956 and

the S a v i n g s B a n k Act of

15

J a n u a r y I960.

C o m p l i a n c e w i t h the p r o v i s i o n s of these two Acts (which

w i l l be d i s c u s s e d below) is s u p e r v i s e d b y a G o v e r n m e n t I n ­

spe c t o r of C o m m e r c i a l B a n k s and S a v i n g s B a nks w h o is r e ­

s p o n s i b l e to the M i n i s t r y of Commerce.

It is the du t y of the G o v e r n m e n t I n s p e c t o r to u n d e r t a k e

r e g u l a r e x a m i n a t i o n s of the m e t h o d s of o p e r a t i o n a n d the

f i n a n c i a l p o s i t i o n of all c o m m e r c i a l a n d savings banks. His

d e c i s i o n s m a y be a p p e a l e d to the M i n i s t r y of C o m m e r c e . He

a lso p r o m u l g a t e s r ules on the fo r m of p r e s e n t a t i o n of* m o n t h l y

b a l a n c e sheets, a nnual accounts, etc. of c o m m e r c i a l and

s avings banks.

a p p l i e s to c o m m e r c i a l b a n k s and s a v i n g s banks.

He p u b l i s h e s a n n u a l r e p o r t s on the a c t i v i t i e s of c o m ­

m e r c i a l b a n k s and sav i n g s banks.

3.

C a p i t a l M a r k e t B o a r d

T h e C a p i t a l M a r k e t B o a r d was e s t a b l i s h e d by an a d m i n i s ­

t r a t i v e d e c i s i o n t a k e n b y the g o v e r n m e n t in J a n u a r y 1972.

Th e M i n i s t e r of E c o n o m i c A f f a i r s and the B u d g e t is c h a i r m a n

of the C a p i t a l M a r k e t Board; its v i c e - c h a i r m a n is the C h a i r ­

m a n of D a n m a r k s N a t i o n a l b a n k * s B o a r d of Gov e r n o r s . T h e C a p i t a l

M a r k e t B o a r d is c o m p o s e d of r e p r e s e n t a t i v e s of the o r g a n i s a ­

t i o n s of the m o n e y and c a p i t a l m a r k e t s a n d of the o t h e r p r i n ­

c i pal trade o r g a n i s a t i o n s , as w e l l as of a f e w g o v e r n m e n t

d e p a r t m e n t s . A small g r oup of experts has bee n set up to

u n d e r t a k e st u d i e s of the c a p i t a l m a r k e t on b e h a l f of the Board.

T he C a p i t a l M a r k e t B o a r d came into b e ing in r e s p o n s e to

the g o v e r n m e n t ' s d esire to ac h i e v e a m o r e s a t i s f a c t o r y d i s ­

t r i b u t i o n of the scarce cap i t a l f u nds available, so as to

ensure p r i o r i t y for the c a p i t a l r e q u i r e m e n t s of e c o n o m i c life.

T h e g o v e r n m e n t did not f i n d it e x p e d i e n t to t a c k l e this p r o b l e m

of d i s t r i b u t i o n t h r o u g h a p u b l i c r e g u l a t i o n of a l l o c a t i o n s of

credit. It was f o u n d p r e f e r a b l e to d i s c u s s this a l l o c a t i o n

p r o b l e m w i t h r e p r e s e n t a t i v e s of f i n a n c i a l i n s t i t u t i o n s and

b u s i n e s s and i n d u s t r y w i t h i n the f r a m e w o r k of a C a p i t a l M a r k e t

Board. The B o ard has onl y a d v i s o r y f u n c t i o n s in r e l a t i o n to

the government.

P a r a g r a p h II

S t r u c t u r e of m o n e y and cap i t a l m arket

1

. M o n e y and c a p i t a l m a r k e t i n s t i t u t i o n s

N o r m a l b a n k i n g b u s i n e s s is t r a n s a c t e d t h r o u g h c o m m e r c i a l

banks and sav i n g s banks, w h i c h cover a wid e r a n g e of a c t i v i ­

ties. C o m m e r c i a l banks are not d i v i d e d a c c o r d i n g to specific

c a t e g o r i e s of l e n d i n g a n d th e y a ccept savings d e p o s i t s in the

same w a y as s avings banks. U n d e r the l e g i s l a t i o n g o v e r n i n g

b a n k i n g a c t i v i t y c o m m e r c i a l b a n k s and s avings banks h a v e

the sole r ight to a d v e r t i s e f o r deposits.

5

-L o n g - t e r m l e n d i n g is c o n c e n t r a t e d in m o r t g a g e c r e d i t

i n s t i t u t e s w h o s e f u n c t i o n s a n d m e t h o d s of o p e r a t i o n are v e r y

d i f f e r e n t f r o m those of m o r t g a g e c r e d i t systems in o t h e r

c o u n t r i e s .

In addition, a n u m b e r of i n s t i t u t i o n s m a k e m e d i u m - t e r m

c r e d i t a v a i l a b l e to i n d u s t r y and crafts, i n c l u d i n g s h i p ­

b u i l d i n g .

F inally, the m o n e y and cap i t a l m a r k e t i n s t i t u t i o n s c o m ­

p r i s e i n s u r a n c e companies, p e n s i o n i n s u r a n c e f u n d s a n d two

p u b l i c p e n s i o n funds.

(a) C o m m e r c i a l b a n k s

(i ) C o m m e r c i a l B a n k Act

U n d e r the terms of the C o m m e r c i a l B a n k Act of 15 June

1956 a b a n k m u s t be c o n s t i t u t e d in a c c o r d a n c e w i t h the p r o ­

v i s i o n s of the C o m p a n i e s Act. O n l y c o m m e r c i a l b a n k s are

a l l o w e d to e n g a g e in b a n k i n g b u s i n e s s a n d the y h a v e the

sole r i g h t to use the w o r k

"bank"

in t h e i r

n a m e s .

T h e C o m m e r c i a l B a n k Act lays d o w n r u l e s on the a c t i v i t i e s

of banks, i n c l u d i n g t h e i r m a n a g e m e n t , c a p i t a l a n d reser v e s ,

s o l v e n c y a n d liquidity, a n d the type a n d scope of i n d i v i d u a l

e n g a g e m e n t s .

T h e C o m m e r c i a l B a n k Act is at p r e s e n t u n d e r r e v i s i o n

w i t h the a i m of b r i n g i n g its p r o v i s i o n s up to date.

D e n m a r k has a b out 80 b a nks (1972) of w h i c h three m a i n

b a n k s a c c o u n t for a l i t t l e over h a l f the total d e p o s i t s and

a d v a n c e s of all c o m m e r c i a l banks. In r e c e n t years, a m a l g a ­

m a t i o n s h a v e r e d u c e d the n u m b e r of b a n k s c o n s i d erably, while

b r a n c h n e t w o r k s have b e e n g r e a t l y extended.

C o m m e r c i a l b a n k a c t i v i t i e s w i l l be d e s c r i b e d below,

w h i l e the r u l e s of the C o m m e r c i a l B a n k Act g o v e r n i n g the

s o l v e n c y a n d l i q u i d i t y of b anks w i l l be dealt w i t h in

C h a p t e r II.

(ii) Bank lending

a d v a n c e s c o n s i s t s of l o ans w h i c h are a m o r t i s e d ove r p e r i o d s

of up to t e n years.

In r e c e n t years, the b a n k s

1

i n t e r m e d i a t e f i n a n c i n g of

b u i l d i n g p r o j e c t s has r i s e n f a s t e r t h a n o t her f o r m s of lending.

Out of t o tal b a n k a d v a n c e s about one f o u r t h c o n s i s t s m a i n l y

of l o ans for n e w b u i l d i n g p r o j e c t s . Su c h b u i l d i n g loans are

r e p l a c e d b y m o r t g a g e f i n a n c i n g w h e n the p r o j e c t s h a v e b e e n

c o m p l e t e d .

C o m m e r c i a l b a n k i n v e s t m e n t in b o n d s and s hares are m u c h

less i m p o r t a n t than t h eir d irect lending, a l t h o u g h t heir

p o r t f o l i o s of s e c u r i t i e s - e s p e c i a l l y b o nds - are r e l a t i v e l y

large. T h i s is e x p l a i n e d b y the fact, a m o n g o t her things,

that the v o l u m e of s h o r t - t e r m s e c u r i t i e s a v a i l a b l e for i n ­

v e s t m e n t is small.

(iii) D e p o s i t s in b a n k s

A b out bO p e r cent of the l i a b i l i t i e s of c o m m e r c i a l banks

c o n s i s t s of d e p o s i t s of w h i c h m o r e t h a n ha l f are sight depo s i t s

w h i l e the b a l a n c e r e p r e s e n t s time d e p o s i t s s u b j e c t to

3

and

12

months' n o t i c e of with d r a w a l .

Since the 1930s the mo s t i m p o r t a n t r a tes of inte r e s t

a l l o w e d on d e p o s i t s have b e e n r e g u l a t e d by an i n t e r e s t rates

a g r e e m e n t c o n c l u d c d b e t w e e n the cen t r a l o r g a n i s a t i o n s of the

c o m m e r c i a l b a n k s and the savings banks. The r ates f i x e d u n der

this a g r e e m e n t have n o r m a l l y be e n a d j u s t e d in a p p r o x i m a t e

c o n f o r m i t y w i t h changes m a d e in the o f f i c i a l d i s c o u n t rate.

In r e c e n t years, the q u e s t i o n has b e e n r a i s e d w h e t h e r

it is still j u s t i f i a b l e to m a i n t a i n the i n t e r e s t r a t e s a g r e e ­

ment, s e e i n g that it r e s t r i c t s compet i t i o n . W i t h the e x c e p ­

t i o n of a f e w n o n - m e m b e r banks, the c o m m e r c i a l b a n k s and the

s avings b a nks have f o u n d it p r e f e r a b l e to k e e p the a g r e e m e n t

in force, w h i l e the m o n o p o l y co n t r o l a u t h o r i t y (the G o v e r n ­

m e n t I n s p e c t o r of C o m m e r c i a l B a n k s and S a v i n g s Banks) has

t a k e n a c r i t i c a l v i e w of the agreement. But the a g r e e m e n t

h as so far b e e n upheld, e s p e c i a l l y b e c a u s e the s carce

l i q u i d i t y of the b a n k i n g s y s t e m e n t a i l s a b n o r m a l c o n d i t i o n s

of c o mpetition.

(iv) F o r e i g n b u s i n e s s

_ 7

-c o m m e r -c i a l b a n k s h a n d l e m o s t r e m i t t a n -c e s of b u s i n e s s and

i n d u s t r y to and f r o m f o r e i g n c o u ntries; w i t h i n c e r t a i n l i m i t s

b a n k s are also a l l o w e d to a c c e p t d e p o s i t s f r o m a n d g r a n t loans

to n o n - r e s i d e n t s .

In addition, b a nks take an a c tive par t in i n t e r n a t i o n a l

a r b i t r a g e t r a n s a c t i o n s in f o r e i g n e x c h a n g e and secu r i t i e s .

O n the o t her hand, t h eir n e t b a l a n c e s w i t h f o r e i g n b a n k s

have bee n s u b j e c t to v a r y i n g d e g r e e s of r e g u l a t i o n since

1965

- see below.

Banks c a n n o t o b t a i n loans a b r o a d for r e - l e n d i n g to

fin a n c e the d o m e s t i c a c t i v i t i e s of D a n i s h borrowers, but

f o r e i g n loans m a y be r a i s e d for the f i n a n c i n g of f o r e i g n

trade. F o r some years, however, the l a t t e r c a t e g o r y of i n ­

t e r n a t i o n a l b o r r o w i n g has b e e n s e v e r e l y r e s t r i c t e d by the

r u l e s g o v e r n i n g the net f o r e i g n - e x c h a n g e p o s i t i o n of c o m ­

m e r c i a l b a n k s - see b e l o w p p . 49-50. (Certain r e l a x a t i o n s of

these r u l e s are u n d e r c o n s i d e r a t i o n ) . M o s t p r o s p e c t i v e

b o r r o w e r s w a n t i n g to a vail t h e m s e l v e s of the e x i s t i n g p o s ­

si b i l i t i e s of r a i s i n g loans a b r o a d t h e r e f o r e ha v e to do so

on their own, but they o f t e n ask a D a n i s h b a n k for assi s t a n c e ,

and D a n i s h banks ha v e g u a r a n t e e d such l oans in m a n y cases.

(b) S a v i n g s banks

(i ) S a v i n g s D a n k Act

U n d e r the terms of the Sav i n g s B a n k Act of

15

J a n u a r y

I960 savings b a nks m u s t be c o n s t i t u t e d as n o n - p r o f i t

self-- g o v e r n i n g i n s t i t u t i o n s w h o s e p r o f i t s m a y be a l l o c a t e d only

to r e s e r v e s or to a c t i v i t i e s ser v i n g p u b l i c interests. The

o bjects of sav i n g s banks are to a c c e p t i n t e r e s t - p a y i n g d e ­

p o s i t s f r o m . t h e general p u b l i c and to i n vest such d e p o s i t s

in a safe m anner. O n l y i n s t i t u t i o n s c o m p l y i n g w i t h the p r o ­

v i s i o n s of the S a v i n g s B a n k Act are e n t i t l e d to use the d e ­

s i g n a t i o n " s a v i n g s bank" in their names.

The S a v i n g s Ba n k Act lays d o w n r u l e s on the a c t i v i t i e s

of savings banks, i n c l u d i n g m a n a g e m e n t and, especially, the

i n v e s t m e n t of depo s i t s h e l d b y savings banks.

h a s r e d u c e d the n u m b e r of s avings b a n k s v e r y a p p r e c i a b l y in

the last f e w years.

S a v i n g s b a nks are not a l l o w e d to e n gage in c o m m e r c i a l

b a n k a c t i v i t i e s such as the d i s c o u n t i n g of Bs/E. It is also

a s s u m e d that t h e y cannot i s sue g u a r a n t e e s (unless s p e c i a l l y

a u t h o r i s e d b y statute), u n d e r t a k e c o l l e c t i o n of debts, deal

in s e c u r i t i e s on their o w n account, or take par t in the e s t a b ­

li s h m e n t of b u s i n e s s u n d e r t a k i n g s . N o r can t h e y e n g a g e in

i n t e r n a t i o n a l b u s i n e s s t r a n s a c t i o n s (not b e i n g a u t h o r i s e d

f o r e i g n - e x c h a n g e d e a l e r s ) , but t h e y m a y a ccept d e p o s i t s in

k r o n e a c c o u n t s f r o m p r i v a t e n o n - r e s i d e n t s in the same w a y

as c o m m e r c i a l banks.

The Savings B a n k Act is u n d e r r e v i s i o n w i t h a v i e w to

b r i n g i n g its p r o v i s i o n s up to date. The sa v i n g s b a n k s h a v e

a s k e d the g o v e r n m e n t for l i b e r a l i s a t i o n of the Act so as to

w i d e n the r a nge of t h e i r b u s i n e s s a c t i v i t i e s - to p r a c t i c a l l y

the same e xtent as that of c o m m e r c i a l banks.

(ii) L e n d i n g

M o s t s a v i n g s ban k a d v a n c e s are m e d i u m and l o n g - t e r m

loans u s e d to f i n a n c e d w e l l i n g houses, farms, l o c a l g o v e r n ­

m e n t a u t h o r i t i e s and c o - o p e r a t i v e u n d e r t a k i n g s . In r e c e n t

years, however, savings b a n k l e n d i n g in the fo r m of cash

cr e d i t s has b e e n i n c r e a s i n g at a fast rate; this r e f l e c t s

the g r o w i n g c o m p e t i t i o n of savings b a n k s w i t h c o m m e r c i a l

b a n k s .

Li k e the p o r t f o l i o s of b o nds h e l d b y c o m m e r c i a l banks,

the s avings banks' b o n d h o l d i n g s t h o u g h f a i r l y l a rge

-are of m u c h less i m p o r t a n c e than t heir d i rect lending.

(iii) D e p o s i t s

Ab out

85

per cent of the funds h e l d b y savings b a nks

co n s i s t s of deposits; r o u g h l y two thirds are time d e p o s i t s

sub j e c t to 3 a n d 12 m o n t h s 1 n o t i c e of w i t h d r a w a l .

T h e m o s t impor t a n t r a t e s of i n t e r e s t a l l o w e d on deposits

are r e g u l a t e d u n d e r the above m e n t i o n e d inte r e s t r a t e s a g r e e ­

m e n t b e t w e e n c o m m e r c i a l b a n k s a n d s a v i n g s banks.

(c ) P o s t Gir o O f f i c e

9

-h a s no b a n k giro, t-he p a r t i c i p a t i o n of c o m m e r c i a l a n d sa v i n g s

b a n k s in the p a y m e n t s s y s t e m is b a s e d m a i n l y on t h e i r customers'

u s e of cheques.

T h e P o s t Giro, o p e r a t e d by the P T T A d m i n i s t r a t i o n , is

a g o v e r n m e n t agency. It c a n n o t be c o m p a r e d w i t h the p o s t a l

s av i n g s b a n k s e x i s t i n g in c e r t a i n o t h e r c o u n tries. T h e

all-- i m p o r t a n t a c t i v i t y of the P o s t G i r o O f f i c e is to f a c i l i t a t e

m o n e y t r a n s f e r s . T h e r e are no o t her g o v e r n m e n t a l b a n k i n g

i n s t i t u t i o n s in D e n m a r k .

P o s t Gi r o a c c o u n t s are w i d e l y used, e s p e c i a l l y b y p u b l i c

a u t h o r i t i e s a n d b u s i n e s s a n d i n d u s t r i a l f i rms ( n o t a b l y for

c o l l e c t i o n of debts); in r e c e n t years, g r o w i n g n u m b e r s of

p r i v a t e p e r s o n s h a v e o p e n e d P o s t G i r o accounts.

A b out 2 0 0 , 0 0 0 a c c o u n t s h a d b e e n o p e n e d b y 31 M a r c h 1971.

T h e total b a l a n c e h e l d in t h e s e a c c o u n t s e x c e e d e d k r . 2 billion,

but the b a l a n c e shows b i g f l u c t u a t i o n s f r o m m o n t h to month.

In f i s c a l 1 9 7 0 / 7 1 m o r e t h a n k r . 3 5 0 b i l l i o n was p a i d into

P o s t Gir o accounts.

F u n d s h e l d in P o s t G i r o a c c o u n t s are p l a c e d in bonds,

lent or p l a c e d on d e p o s i t in D a n m a r k s N a t i o n a l b a n k i n an

a c c o u n t w i t h the M i n i s t r y of Finance. At y e a r - e n d 19 7 1 the

f u n d s c o n s i s t e d of

M i l l i o n

P e r

k r o n e r

cent

B o nds

_{1 , 6}

45

57

A d v a n c e s

I

83

6

A c c o u n t w i t h

the M i n i s t r y

of F i n a n c e

1 ,0 8 6

₃₇

2 , 9 1 4

100

D i r e c t lending, w h i c h is thus v e r y modest, c o n s i s t s

m a i n l y of l o a n s to t e l e p h o n e c o m p a n i e s a n d i n d i r e c t l y

-to local g o v e r n m e n t author i t i e s , and d e p o s i t s in c o m m e r c i a l

banks, etc.

L i k e c o m m e r c i a l banks, the P o s t G i r o O f f i c e c a n effect

p a y m e n t s into a n d out of Denmark.

(d) M o r t g a g e credit i n s t i t u t e s

T he D a n i s h m o r t g a g e c r edit s y s t e m w a s b u i l t up in the

m i d d l e of the 19th c e n t u r y and has since b e e n e x p a n d e d in

v a r i o u s ways. A r e c e n t s t r u c t u r a l r e o r g a n i s a t i o n has

c o n ­

s i d e r a b l y r e d u c e d the n u m b e r of i n s titutes, s i m p l i f i e d the

system, a n d m a d e the t e rms of m o r t g a g e c redit m o r e e x a c t i n g

b y s h o r t e n i n g the p e r i o d of a m o r t i s a t i o n , r e d u c i n g the size

of loans in r e l a t i o n to p r o p e r t y v a l u e s and, f i n a l l y b y r e ­

s t r i c t i n g the a ccess for l o cal g o v e r n m e n t a u t h o r i t i e s to r a i s e

m o r t g a g e l o a n s on c e r t a i n c a t e g o r i e s of property.

M o r t g a g e credit is a v a i l a b l e in two tiers, viz. as first

an d s e c o n d m o r t g a g e loans. T h e r e are s e v e n m o r t g a g e credit

inst i t u t e s . W i t h c e r t a i n e x c e p t i o n s fou r of them g r ant first

and s e c o n d m o r t g a g e loans on p r a c t i c a l l y all r e a l property.

T h e other t h r e e are s p e c i a l i s e d i n s t i t u t e s w h i c h g r ant m o r t ­

gage loans on i n d u s t r i a l and a g r i c u l t u r a l prop e r t i e s .

M o s t of the i n s t i t u t e s are o r g a n i s e d as. a s s o c i a t i o n s

of b o r r owers. The i n s t i t u t e s p a y no dividends: p r o f i t s are

a l l o c a t e d to r e s e r v e funds. The i n s t i t u t e s

1

a c t i v i t i e s are

r e g u l a t e d by law. T h e g o v e r n m e n t is r e p r e s e n t e d on their

b o a r d s but is nqt f i n a n c i a l l y i n v o l v e d in their activities.

T h e i n s t i t u t e s have e s t a b l i s h e d a M o r t g a g e C r e d i t B o a r d

w h i c h is t h e i r " p r o f e s s i o n a l " o r g a n i s a t i o n . Thi s Board, on

w h i c h the g o v e r n m e n t is r e p r e s e n t e d , als o s u p e r v i s e s the

c o m p l i a n c e w i t h the r u l e s laid d o w n for e v a l u a t i o n of p r o p e r ­

ties and for the p e r c e n t a g e s of p r o p e r t y v a l u e s w i t h i n w h i c h

loans m a y be granted. T h e p u r p o s e of these r ules is to avoid

c o m p e t i t i o n in this field.

L o a n s on n e w o n e - f a m i l y h o u s e s m a y be gra n t e d for up to

80

per cent of the p r o p e r t y v a l u e w i t h m a t u r i t i e s of

20-30

years. L o a n s on n o n - p r o f i t h o u s i n g projects, for w h i c h the

go v e r n m e n t g u a r a n t e e s the last part of the mortgage, are

g r a n t e d for up to

95

per cent of the v a l u e and r u n for

30-^0

years. L o a n s on b u s i n e s s and i n d u s t r i a l p r o p e r t y are gra n t e d

w i t h i n n a r r o w e r l i mits and g e n e r a l l y hav e m u c h s h o r t e r p eriods

of a m o r t i s a t i o n . M o r t g a g e credit m a y also be o b t a i n e d for

r e b u i l d i n g a n d e x t e n s i o n and, w i t h i n n a r r o w e r limits, also

on older p r o p e r t i e s .

11

-as c o l l a t e r a l for m o r t g a g e loans. L o a n s are thus n o r m a l l y

d i s b u r s e d to b o r r o w e r s in b o nds c a r r y i n g the same n o m i n a l

i n t e r e s t and w i t h the same m a t u r i t y as the m o r t g a g e deeds

a c c e p t e d as c o l l a t e r a l security. B o r r o w e r s then hav e to sell

t h ese b o nds t h r o u g h a ban k or s t o c k - e x c h a n g e broker. B o nds

are i ssued to bearer; t h e y are n e g o t i a b l e on the C o p e n h a g e n

S t o c k E x c h a n g e w h e r e p r i c e s are q u o t e d e v e r y day.

The m o r t g a g e credit s y s t e m is v e r y effective; the s pread

b e t w e e n the inte r e s t rat e p a y a b l e by the d e b t o r a n d the i n ­

t e r e s t rate o b t a i n e d by the c r e d i t o r is r e l a t i v e l y small

- t y p i c a l l y a bout O.p per cent. The s y s t e m also p r o v i d e s easy

access to m o r t g a g e c r edit on dwelling, business, a g r i c u l t u r a l

and i n d u s t r i a l prop e r t i e s .

Th i s f o r m of f i n a n c i n g t h e r e f o r e h o lds a p r e d o m i n a n t

p o s i t i o n on the c apital market. In terms of m a r k e t value,

the net s u p p l y of m o r t g a g e credit b onds to the m a r k e t has

r e p r e s e n t e d

8-1 0

per cent of GNP in r e c e n t years. At end-June

1972

the n o m i n a l v a l u e of m o r t g a g e c r edit bonds in c i r c u l a ­

ti o n a g g r e g a t e d kr.94 billion. The m a r k e t v a lue of the bonds,

though r a t h e r lower, was m u c h g r e a t e r than the total of c o m ­

m e r c i a l and savings b a n k l e n d i n g w h i c h a m o u n t e d to k r

.5 1

b i l ­

lion at the same time.

(e) O t h e r f i n a n c i al i n s t i t u t e s

A f e w o t her large f i n a n c i a l i n s t i t u t e s are a c t i v e on

the cap i t a l market. A m o n g these are D e n m a r k ' s Shi p C r e d i t

Fund, the I n d u s t r i a l F i n a n c e Institute, and the i-mnicipa.l

C r e d i t I n s t itute.

D e n m a r k ' s Ship C r e d i t F u n d was e s t a b l i s h e d in 1 ‘Kil as

a s e l f - g o v e r n i n g n o n - p r o f i t i n s t i t u t i o n by D a n m a r k s

ivatio-nalbank, c o m m e r c i a l banks, i n s u rance companies, s h i p y a r d s

and shipowners.

The F u n d grants loans r/.ainly for n e w ships b u ilt for

D a n i s h s h i p o w n e r s by ijanish or f o r e i g n shipy a r d s and for

n e w ships b u i l t for f o r e i g n owners by D a n i s h yards.

For ships built by D a n i s h yards, D a n m a r k s N a t i o n a l b a n k

has u n d e r t a k e n to buy the b onds i ssued by the F u n d at par

w i t h i n two m o n t h s of d e l i v e r y of a n e w ship. Thi s arrangement,

c o m p e t i t i o n w i t h f o r e i g n yards, w a s p r o l o n g e d in D e c e m b e r

1971 for one y e a r in r e s p e c t of ships f o r w h i c h f i r m o r d e r s

h a d b e e n b o o k e d b e f o r e the end of 1972 f o r c o n t r a c t u a l d e ­

l i v e r y b e f o r e y e a r - e n d 1976.

L o a n s are n o r m a l l y g r a n t e d for e i g h t y e a r s w i t h i n 80

p e r cent of the c o n t r a c t p r i c e at a n o m i n a l i n t e r e s t of

7 p e r cent p l u s l o a n c h a r g e s w h i c h b r i n g the d e b t o r ' s rate

of i n t e r e s t up to 7^-8 p e r cent. L o a n s are d i s b u r s e d in

b o n d s at the same n o m i n a l i n t e r e s t a n d w i t h the same m a ­

t u r i t y as the u n d e r l y i n g loans.

Ship C r e d i t F u n d l o a n s a g g r e g a t e d k r » 3 « 5 b i l l i o n at

t he end of 1971*

T h e I n d u s t r i a l F i n a n c e I n s t i t u t e w a s e s t a b l i s h e d in

1958 b y D a n m a r k s N a t i o n a l b a n k , c o m m e r c i a l banks, s avings

banks, i n s u r a n c e c o m p a n i e s and the F e d e r a t i o n of D a n i s h I n ­

dustries.

T h e I n s t i t u t e g r a n t s m e d i u m - t e r m loans to i n d u s t r i a l

u n d e r t a k i n g s a n d craft industries, e s p e c i a l l y for the f i ­

n a n c i n g of f i x e d i n v e s t m e n t s , t h e r e b y f i l l i n g the n e e d s

e x i s t i n g for credit in the i n t e r v a l b e t w e e n s h o r t - t e r m ban k

f i n a n c i n g a n d l o n g - t e r m m o r t g a g e c r e d i t f i n ancing. L o a n s for

i n v e s t m e n t s in m a c h i n e r y g e n e r a l l y r u n for 3-5 years, w h ile

l o ans for p l a n t w h e r e b u i l d i n g s and i n s t a l l a t i o n s of m a c h i n e r y

c o n s t i t u t e an e n t i t y r u n for p e r i o d s r a n g i n g b e t w e e n five

a n d eight years.

The I n s t i t u t e obt a i n s its f unds f r o m l a r g e c o m b i n e d

issues, the p r o c e e d s of w h i c h are lent in c a s h at r a tes of

i n t e r e s t b a s e d on the y i e l d s of the r e s p e c t i v e bo n d issues.

The I n s t i t u t e ' s loans o u t s t a n d i n g on 31 D e c e m b e r 1971

t o t a l l e d k r

.^65

million.

T h e M u n i c i p a l C r e d i t I n s t i t u t e m a k e s c r e d i t a v a i l a b l e

to l o c a l g o v e r n m e n t a u t h o r i t i e s , joint m u n i c i p a l u n d e r t a k i n g s ,

d i s t r i c t h e a t i n g stations, p o w e r stations, g r o u p s of l o c a l

a u t h o r i t i e s o p e r a t i n g b a n k s of t r a n s f o r m e r s , w a t e r w o r k s , etc.,

p r o v i d e d that s u c h loans are f u l l y g u a r a n t e e d b y l ocal g o v e r n ­

m e n t author i t i e s .

13

-h a v i n g o b t a i n e d or g u a r a n t e e d l o ans g r a n t e d by t-he I n s t itute.

T h e m e m b e r s are j o i n t l y or s e v e r a l l y l i a b l e to b o n d holders.

L o a n s are d i s b u r s e d to b o r r o w e r s in b o n d s in the same w a y

as loans o b t a i n e d fro m m o r t g a g e c r e d i t i n s titutes.

T h e I n s t i t u t e ' s l o ans o u t s t a n d i n g on 31 D e c e m b e r 1971

a m o u n t e d to k r . 4 . 1 bill i o n .

A n u m b e r of s m a l l e r institutes, e.g. f i n a n c i a l c o m p a n i e s

o w n e d b y c o m m e r c i a l banks, c a ter in p r i n c i p l e to all u n d e r ­

t a k i n g s w h i c h can offer a d e q u a t e c o l l a t e r a l s e c u r i t y for

loans. O t h e r c o m p a n i e s f i n a n c e hire p u r c h a s e c o n t r a c t s . O thers

a g a i n o p e r a t e in a s s o c i a t i o n w i t h trade o r g a n i s a t i o n s , p u r ­

c h a s i n g societies, etc. T h e total v o l u m e of loans g r a n t e d by

such c o m p a n i e s is v e r y

s mall

in r e l a t i o n to total lending.

(^ ) I n s u r a n c e c o m p a n i e s and p e n s i o n funds

I n s u r a n c e c o m p a n i e s and p e n s i o n f u n d s are r e l a t i v e l y

l arge s u p p l i e r s of l o n g - t e r m capital, e s p e c i a l l y to the bond

market. T h e y m a y also b u y shares w i t h i n c e r t a i n l i mits and

grant d i rect l o n g - t e r m loans, e s p e c i a l l y to local g o v e r n m e n t

author i t i e s , and aga i n s t m o r t g a g e on r e a l p r o p erty. At

year-- e n d 1969 the v o l u m e of b o n d s h e l d by i n s u r a n c e c o m p a n i e s

and p e n s i o n f u nds a g g r e g a t e d k r .

1 2 .5

billion, and their direct

loans a m o u n t e d to kr.J.^l billion. T h e b i g g e s t life i n s u rance

c o r p o r a t i o n is S t a t e - o w n e d . Its o p e r a t i o n s are b a s e d on the

same p r i n c i p l e s as those of p r i v a t e companies.

(g ) S u p p l e m e n t a r y ( Labour Mar k e t ) P e n s i o n Fu n d

an d the S ocial P e n s i o n F u n d

The S u p p l e m e n t a r y (L a b o u r M arket) P e n s i o n F u n d - k n o w n

in D e n m a r k as ATP: (Arbe

j d s m a r k e d e t s Tillcegspension) - was

e s t a b l i s h e d in 1964, and the S o c i a l P e n s i o n F u n d (DSP: Lien

so c i a l e P e n s i o n s f o n d ) w a s e s t a b l i s h e d in 1970*

ATP, w h o s e object is to p a y s u p p l e m e n t a r y p e n s i o n s to

all wag e a n d s a l a r y earners, a d m i n i s t e r s the c o n t r i b u t i o n s

w h i c h w a g e a n d s a l a r y e a r n e r s and t h e i r e m p l o y e r s p a y into

the Fund.

D S P was e s t a b l i s h e d in c o n n e c t i o n w i t h the e n a c t m e n t

of a g e n e r a l n a t i o n a l s u p p l e m e n t a r y p e n s i o n . Its f u n d s d erive

f r o m c o n t r i b u t i o n s l e v i e d on all t a x p a y e r s at the r a t e of

1

p e r cent of n e t t a x a b l e income.

U n d e r the D S P Act, D S P funds m u s t be c u r r e n t l y i n v e s t e d

in bonds. At e n d - J u l y 1972, D S P ’s b o n d h o l d i n g s a m o u n t e d to

k r . 1 . 2 bill i o n . As the d i s b u r s e m e n t of s u p p l e m e n t a r y n a t i o n a l

p e n s i o n s w i l l not b e g i n u n t i l 1976, the D S P ' s s u r p l u s and

the r e s u l t i n g b o n d p u r c h a s e s w i l l i n c r e a s e r a p i d l y in the

n e x t f e w years. D a n m a r k s N a t i o n a l b a n k is the a g ent of D S P

a n d h a n d l e s its i n v e s t m e n t s .

2. T h e b a n k i n g s y s t e m a n d the c a p i t a l m a r k e t

T h e D a n i s h ca p i t a l m a r k e t is d o m i n a t e d b y bonds. B y far

the g r e a t e r pa r t of the b o n d supp l i e s are i s s u e d by m o r t g a g e

c redit i n s t i t u t e s and the spe c i a l i n s t i t u t e s c a t e r i n g to

e c o n o m i c life.

F r o m time to time

the g o v e r n m e n t has be e n a l a rge b o r ­

r o w e r on the b o n d market, but since 195^ onl y a f e w p r e m i u m

l o t t e r y l o ans ha v e b e e n f l o a t e d on the d o m e s t i c market.

As e x p l a i n e d u n d e r 1 (d) above, l oans are e f f e c t e d by

current i s s u e s of m o r t g a g e credit b o n d s w h i c h eac h b o r r o w e r

sells on the m a r k e t - n o r m a l l y t h r o u g h a c o m m e r c i a l bank, a

savings b a n k or a s t o c k - e x c h a n g e b r o k e r - in step w i t h his

n e e d for capital.

B o n d p r i c e s are f i x e d b y d a i l y q u o t a t i o n on the S t o c k

E x c h ange. A l l t r a n s a c t i o n s d u r i n g o f f i c i a l b u s i n e s s hours,

i n c l u d i n g t h o s e of D a n m a r k s N a t i o n a l b a n k , c o m m e r c i a l b anks

a nd sav i n g s banks, m u s t take p l a c e t h r o u g h o f f i c i a l

stock-- e x c h a n g e brokers. T h e s e t r a n s a c t i o n s r e p r e s e n t o n l y a small part

of the d a i l y turnover, but the q u o t a t i o n s d e t e r m i n e the

p r i c e s of t r a n s a c t i o n s o u t s i d e the S t o c k Exchange.

F or the p u r p o s e of t h eir f u n c t i o n s on the b o n d market,

f i n a n c i a l i n s t i t u t i o n s h a v e to m a i n t a i n w o r k i n g p o r t f o l i o s

of bonds, a n d t h eir b o n d h o l d i n g s also r e p r e s e n t p a r t of

15

-C o m m e r c i a l b a n k s a n d sav i n g s b a n k s can use t h e i r b o n d

h o l d i n g s as c o l l a t e r a l f o r loans in the N a t i o n a l b a n k . Thi s

c r edit f a c i l i t y and the e a s y n e g o t i a b i l i t y of b o n d s hav e

g e n e r a t e d t e n d e n c i e s for the banks' d e m a n d for b o n d s to f l u c ­

t u ate in step w i t h t h e i r h o l d i n g s of l i q u i d funds, r e g a r d ­

less of the l o n g m a t u r i t i e s of m o r t g a g e c r edit b o n d s and,

f r e q u e n t l y , c o n s i d e r a b l e f l u c t u a t i o n s in b o n d prices.

S e e i n g that s h o r t - t e r m f l u c t u a t i o n s in b a n k l i q u i d i t y

m a y induce b a n k s to e n g a g e in c o m p e n s a t o r y t r a n s a c t i o n s on

the m a r k e t for l o n g - t e r m bonds, w h i c h m a y i n t e r f e r e w i t h

m o n e t a r y policy, D a n m a r k s N a t i o n a l b a n k in 1972 i n t r o d u c e d

n e w six- a n d n i n e - m o n t h d e p o s i t c e r t i f i c a t e s s u p p l e m e n t i n g

the t h r e e - m o n t h c e r t i f i c a t e s w h i c h h a d e x i s t e d since 195&*

T h e i n t e r e s t a l l o w e d on the n e w s h o r t - t e r m p a p e r s was f i x e d

at l evels that s h o u l d m a k e t h e m r e a l i s t i c a l t e r n a t i v e s to

bonds. The d e p o s i t c e r t i f i c a t e s wil l be d i s c u s s e d in m o r e

de t a i l in S e c t i o n II and C h a p t e r II.

T n e share m a r k e t is of a r e l a t i v e l y m o d e s t size in D e n ­

mark. T h e r e are m a n y j o i n t - s t o c k companies, but c o m p a r a t i v e l y

f e w of t h e m - n o t a b l y c o m m e r c i a l banks, s h i p p i n g companies,

m a j o r b u s i n e s s and i n d u s t r i a l c o m p a n i e s - have r e g i s t e r e d

for q u o t a t i o n of their s h a r e s on the S t o c k E x c h a n g e . On

1 J a n u a r y 1970, there w e r e 1 7 , 2 0 0 j o i n t - s t o c k c o m p a n i e s w i t h

a total p a i d - u p share c a p i t a l of k r . 1 2 . 5 billion. At the end

of 1971» the shares of a bout

275

c o m p a n i e s w i t h a t otal p a i d

-- up share c a p i t a l of k r «

5»5

b i l l i o n w e r e i n c l u d e d in the

o f f i c i a l s t o c k - e x c h a n g e list of q u o t a t i o n s (during and after

o f f i c i a l b u s i n e s s h o u r s ) .

C o m m e r c i a l b a nks and s t o c k - e x c h a n g e b r o k e r s take an

a ctive p a r t in share issues. B e i n g o f f i c i a l f o r e i g n - e x c h a n g e

d e a l e r s t h e y are also entitled, w i t h i n c e r t a i n limits, to

take par t in i ssues f l o a t e d on i n t e r n a t i o n a l c a p i t a l markets.

T h e b i g g e s t of the a u t h o r i s e d f o r e i g n - e x c h a n g e d e a l e r s have

a v a i l e d t h e m s e l v e s of this r i g h t t h r o u g h p a r t i c i p a t i o n in

i n t e r n a t i o n a l c o n s o r t i u m s .

3. P r i v a t e n o n - b a n k s e c t o r ' s s a v i n g h a b i t s

V e r y l i t t l e s t a t i s t i c a l i n f o r m a t i o n is a v a i l a b l e about

p r i v a t e s a v i n g s in D e n m a r k .

items of the private n o n - b a n k s e c t o r ’s a c q uisition of f i n a n ­

cial assets*

D o m e s t i c non- b a n k sector's net acquisition

of m a i n types of financial assets, 1958-1970

S a v i n g s ,

total of

the three

types

listed

M i l l i o n

kroner

Increase

in cash

holdings

(see Table

3

)

Additions

to holdings

of bonds

and shares

(market

v a l u e )

Increase in

assets he l d

w i t h insurance

companies

and pension

funds

1958

2,085

195

360

1959

2,094

494

605

I

960

1,225

834

460

1961

2 ,108

1,315

565

1962

2 ,00 1

1,042

570

1963

3 , 2 1 1

1,420

695

1964

3,136

_2,171

₈₇₀

1965

3,096

2,254

₈₆₅

1966

4,567

1,321

1 , 0 7 0

1967

3,876

1,562

1 ,1 6 0

1968

6,229

1,835

1,325

1969

5,208

4,118

_1,495

1970

1,347

3,634

_{1 , 6 2 0}

1) Some

of the figures

given for 1965 -1970 represent

2,640

3,193

2,519

3,988

3,613

5,326

6,177

6,215

6,958

6,598

9,389

10,8 21

6,601

It will be seen from the above table that the private

n o n - b a n k sector places a large part of its savings in

securities; these securities consist almost entirely of bonds.

The preference given to bonds is proba b l y due especially to

the long hi s t o r y of the D a n i s h mortgage credit system and its

predominant role in the financing of real property, which

have gradually made the general public familiar wit h bonds.

Another r e a s o n is that the yields obtained on these easily

M a r k etable instruments norm a l l y exceed the highest rate of

interest allowed on deposits in commercial banks and savings

b a n k s .

4. E x t e r n a l payments

D u r i n g the early part of the p e r i o d 1958-1971 imports

and exports of goods and services accounted for 33-34 per

cent of GNP. In the last part of the p eriod the share of

imports fell to about

30 per cent, but exports declined even

more - to about

28

per cent*

This reflects the d i s e q u ilibrium that developed on D e n ­

mark's external balance during the

1960

s.