•  
  •  
 

Document Type

Case Study

Case Series

Broad-based Capital Injections

JEL Codes

G01, G28

Abstract

Both the international financial system and Denmark were experiencing challenges in 2007 and 2008, and they came to a head in Denmark when Roskilde Bank experienced liquidity pressures in June 2008. As it became clear that Roskilde Bank was insolvent and no private solutions would be found, and as the global financial crisis worsened leading to the bankruptcy of Lehman Brothers, the Danish government decided to take stronger action. To ensure the short-term survival of Roskilde Bank, the national bank issued a non-limited credit facility. After it passed a deposit guarantee scheme in 2008 and established a Financial Stability Company, the Danish government established a capital injections program in February 2009. This program was intended primarily to support solvent credit institutions so that they could stimulate the supply of credit to viable businesses and households. The injections took the form of subordinated debt, which Danish regulators considered a form of Tier 1 capital. The program recapitalized institutions up to a Tier I capital ratio of 12%. In 2009, 43 institutions received DKK 46 billion in capital injections at an average yield to maturity of 10.08%.

Date Revised

2021-12-15

Download

Share

COinS