speech by governor lars rohde at the annual meeting of finance denmark 2019 check against delivery 2 december 2019 thank you for inviting me to speak here today. i would like to start by talking about a topic that is high on the global agenda right now : climate change. while there is considerable uncertainty as to what will happen, there is little doubt by now that climate change will have major implications for large parts of our society. it has become clear that political actions are required in order to halt the negative developments. a higher price for co2, so that it reflects the costs of carbon emissions, is the cheapest and most effective approach. climate change is a shared and global challenge. consequently, stronger international cooperation is important. but it is also important that we all learn more about how climate change can affect the economy and the financial sector. that is why a growing number of central banks have begun to look at climate change in relation to their core tasks. decades of inaction in relation to climate policy mean that we now have only a limited time span to respond. and the longer we wait, the shorter time we will have to create a green economy. less time for transition means greater risk for the economy and for the financial sector. climate change is already visible in our surroundings. we frequently see large - and small - scale damage created by extreme weather in different parts of the world. in denmark we have seen e. g. droughts, gales and flooding. page 1 of 6 many of you presumably remember the december hurricane in 1999. the damage caused that evening and night amounted to around kr. 13 billion. flooding with extensive resultant damage may become a recurring phenomenon in the future. one of the reasons will be rising sea levels. danmarks nationalbank has calculated how the collateral behind the credit institutions'housing loans will be affected in a scenario in which sea levels rise considerably. in that case, the risky share of the banks'collateral will increase notably. these calculations are one example among many of why it may be necessary to invest heavily in e. g. coast and climate protection if we are to avoid the worst consequences of climate change. it is widely agreed that the physical risks related to climate change can be reduced if we can strengthen the transition towards a green economy at the global level. the costs of this transition may be substantial. especially firms and industries that have a particularly strong carbon footprint will be challenged. ultimately, these challenges may rub off on the financial sector via e. g

when the bill was passed, it was a precondition that revenue from such taxation that had been moved forward should be used to reduce the government debt. this revenue is extraordinary and temporary, and will entail a shortfall at a later time. the structural budget balance will deteriorate in 2014 and is close to the budget act ’ s limit of minus 0. 5 per cent of gdp. the conclusion is clear. there is neither a need for nor scope for fiscal easing. lending by banks and mortgage banks to the corporate sector has been virtually unchanged since 2008. but there has been a redistribution among the credit institutions, so that lending by mortgage banks has increased, while lending by banks has declined. this may reflect the need for some banks to consolidate after the financial crisis, encouraging customers – especially firms – to raise mortgage loans rather than bank loans. at the same time, some firms may have found mortgage loans more attractive. in addition, firms have increasingly sought alternative sources of funding, such as corporate bonds, sector loans and trade credits, export guarantees, etc. the mortgage banks have been able to meet the demand for loans and have thereby contributed to a stable supply of credit in the crisis years. this applies not only in relation to corporate customers, but also in relation to households. the number of families falling behind on their mortgage payments has been low since the mid - 1990s. even the financial crisis led to only a small increase in the arrears ratio for mortgage debt. the question is whether this is also likely to be the case in future. danish households have far more debt relative to income than families in other countries. this has caused some concern among observers of the danish economy as to whether the families will be able to service their debt, especially if the danish economy were to be affected by another serious recession. let me state this very clearly : danmarks nationalbank does not share the view that the high debt ratio among households is a problem in relation to financial stability. even financially squeezed households typically service their mortgages and cut down on private consumption instead. this affects demand in the economy and hence the corporate sector. that has an impact on macroeconomic stability rather than financial stability, but indirectly the banks may also be affected. danmarks nationalbank ’ s most recent monetary review evaluates a number of stress scenarios in which interest rates and unemployment soar and house and equity prices dive. while the selected stress scenarios would led to loan impairment charges for the financial sector overall, the calculations do