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Document Type

Case Study

Case Series

Blanket Guarantees

JEL Codes

G01, G28

Abstract

As foreign credit in Denmark dried up during the summer of 2008, Danish banks became increasingly reliant on short-term borrowing. The government took over the failing Roskilde Bank, the country’s eighth-largest bank, in late August. On October 5, 2008, the government announced a voluntary General Guarantee Scheme to fully insure deposits and other senior liabilities of participating banks. Banks could participate in the scheme by becoming members of the financial sector’s banking consortium, Det Private Beredskab, or in English, the Private Contingency Association (PCA), before October 13, 2008. The General Guarantee Scheme fully insured all depositors and senior unsecured creditors of PCA banks for a binding two-year period, between October 5, 2008, and September 30, 2010. One hundred thirty-three banks participated as members of the PCA and accounted for 99% of deposits in Denmark. The PCA was responsible for funding up to 35 billion Danish kroner (DKK; USD 6.25 billion) of the guarantee fund through fees that member banks paid, with the government committing to cover any additional costs. The legislation also created a new state-run institution, the Financial Stability Company, in charge of winding up insolvent participants and administering the guarantee funds received from the PCA. By its close, the General Guarantee Scheme had paid out DKK 12 billion in guaranteed claims of six participating banks.

Date Revised

2022-12-22

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