4 ms·

There has been a money laundry scandal in its Estonian branch of epic proportions. The risk is now a massive fine to Danske Bank. Not by the Danish state. But

by chvid 8y ago

There has been a money laundry scandal in its Estonian branch of epic proportions. The risk is now a massive fine to Danske Bank. Not by the Danish state. But by either the EU or more likely the Americans. Danske Bank is the biggest bank in Denmark with +50% of all banking business. It is a liability of the Danish state meaning that if it gets in true trouble the state will bail it out.

hocuspocus 8y ago
> the state will bail it out. Would it be that bad? From my simplistic understanding of economics, the Danish central bank can bail it out with minimal side effects, right? And the state would be in a position to ask for a commensurate compensation.
- lordnacho 8y ago
  The state already bailed out the banks, including this one, back in 2008. Denmark has a larger banking sector relative to the economy than most countries, and the politicians thought it was a good idea to bail them out. What's scandalous is they didn't insist on wiping out the shareholders.
charlesdm 8y ago
Actually, the share and bondholders will be required to bail it in, under EU laws introduced a few years ago.
- drb91 8y ago
  Yikes. Sounds shitty for EU residents in the long term. Wouldn’t it be better to let the bank fail, ie learn from 2008 that bailing out encourages the bad behavior?
  - charlesdm 8y ago
    This is actually great for EU residents, as shareholders and bondholders will (initially) be on the hook for excess risks being taken, not residents. Not all bank shareholders were wiped out in 2008, while they clearly should have based on the amount of public money some banks got.
    - drb91 8y ago
      Ahh, after some googling I see what you’re saying. Thank you!
    - ismail 8y ago
      Does the ECB hold bonds for Danske bank? The ECB and other central banks have been on a bond buying [0] 'spree' [1] If the ECB holds these bonds then technically eu monetary union citizens do have exposure. To me this seems to have been a dangerous decision by the ECB and other central banks. With their policy, could this have created a situation whereby companies that would not otherwise survive are now over-leveraged. The result being a small disruption bringing everything down with it? To put the question another way, do we have a massive bubble in corporate debt due to central bank polcies, resulting in companies that should have gone under being over-leveraged. With the ECB planning to stop the buying by end 2018, will we see a correction? [0] https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h... [1] https://www.wsj.com/articles/central-banks-put-squeeze-on-sovereign-debt-market-1467847016 https://www.wsj.com/articles/central-banks-put-squeeze-on-so... Edit: According to JP morgan [3] the policy has created 'zombie' companies. [3] https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-s-erdoes-says-ecb-bond-buying-creates-zombie-companies https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-...
- qubax 8y ago
  Except if it is a too-big-to-fail bank and there is systematic risk, the taxpayers will have to bail it out. A bank that controls half a nation's banking is systematic. The government will bail it out. If things get bad, the EU/ECB will bail it out. One of the benefits of running large banks ( and insurers ) is "privatize profits and socialized losses". These bankers and insurers can't lose. If they gamble and win, they get the rewards. If they gamble and lose, everyone else has to foot the bill.

by chvid 8y ago

hocuspocus 8y ago

> the state will bail it out. Would it be that bad? From my simplistic understanding of economics, the Danish central bank can bail it out with minimal side effects, right? And the state would be in a position to ask for a commensurate compensation.

lordnacho 8y ago
The state already bailed out the banks, including this one, back in 2008. Denmark has a larger banking sector relative to the economy than most countries, and the politicians thought it was a good idea to bail them out. What's scandalous is they didn't insist on wiping out the shareholders.

charlesdm 8y ago

Actually, the share and bondholders will be required to bail it in, under EU laws introduced a few years ago.

drb91 8y ago
Yikes. Sounds shitty for EU residents in the long term. Wouldn’t it be better to let the bank fail, ie learn from 2008 that bailing out encourages the bad behavior?
- charlesdm 8y ago
  This is actually great for EU residents, as shareholders and bondholders will (initially) be on the hook for excess risks being taken, not residents. Not all bank shareholders were wiped out in 2008, while they clearly should have based on the amount of public money some banks got.
  - drb91 8y ago
    Ahh, after some googling I see what you’re saying. Thank you!
  - ismail 8y ago
    Does the ECB hold bonds for Danske bank? The ECB and other central banks have been on a bond buying [0] 'spree' [1] If the ECB holds these bonds then technically eu monetary union citizens do have exposure. To me this seems to have been a dangerous decision by the ECB and other central banks. With their policy, could this have created a situation whereby companies that would not otherwise survive are now over-leveraged. The result being a small disruption bringing everything down with it? To put the question another way, do we have a massive bubble in corporate debt due to central bank polcies, resulting in companies that should have gone under being over-leveraged. With the ECB planning to stop the buying by end 2018, will we see a correction? [0] https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.html https://www.ecb.europa.eu/mopo/implement/omt/html/index.en.h... [1] https://www.wsj.com/articles/central-banks-put-squeeze-on-sovereign-debt-market-1467847016 https://www.wsj.com/articles/central-banks-put-squeeze-on-so... Edit: According to JP morgan [3] the policy has created 'zombie' companies. [3] https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-s-erdoes-says-ecb-bond-buying-creates-zombie-companies https://www.bloomberg.com/news/articles/2018-07-18/jpmorgan-...
qubax 8y ago
Except if it is a too-big-to-fail bank and there is systematic risk, the taxpayers will have to bail it out. A bank that controls half a nation's banking is systematic. The government will bail it out. If things get bad, the EU/ECB will bail it out. One of the benefits of running large banks ( and insurers ) is "privatize profits and socialized losses". These bankers and insurers can't lose. If they gamble and win, they get the rewards. If they gamble and lose, everyone else has to foot the bill.