experienced the same difficulties. danmarks nationalbank cannot provide liquidity facilities to cover borrowing requirements in foreign exchange since its role is primarily linked to kronedenominated liquidity. banks with large business volumes in foreign exchange must themselves ensure adequate contingency funding plans in the relevant currencies. overall, the danish money market has navigated fairly successfully through these rough waters, which ultimately shows that the danish financial system is in good shape. nevertheless, denmark has been affected by the international turmoil. financial statements for the 3rd quarter showed that danish banks were also exposed to investment vehicles, liquidity lines and structured credit products. the exposures and losses were, however, relatively small in size. lending by danish banks has increased substantially in recent years, and some have seen growth rates in excess of 30 per cent. earnings have been high and losses low. particularly mortgage loans to homeowners have grown significantly. growth in lending has been so strong that a large deposit - loan gap of more than kr. 400 billion has accumulated. this is the amount by which the banks'lending exceeds the deposits from customers. consequently, the danish banks have to rely on the financial and money markets as sources of financing. developments abroad over the summer have shown that it can be risky to base one's business on such financing. the price of market financing may change rapidly, and the markets may " dry up ". the international liquidity crisis has provided an opportunity to test the contingency funding plans and review the business strategy in the light of the findings. it is not as easy as it used to be for the danish banks to finance their growth via the financial and money markets. financing has become more expensive, and the rising costs of financing will undoubtedly be reflected in the banks'earnings and the prices charged to customers. growth in lending remains high, but declining. some banks have adopted a less aggressive business strategy and put their expansion plans on hold. others have expressed intentions to reduce their commitments to international investment vehicles, liquidity lines and structured credit products due to reputational risk. developments have shown that strategies based on double - digit growth rates cannot simply be extended. the strong growth in lending to the corporate sector entails a greater risk of losses to the banks. this risk is rising, but from a very low level. unpleasant surprises can never be ruled out, but the economy is still favourable. and the financial statements for the 3rd quarter also showed that the banks'earnings remain high. solvency

lack of confidence is likely to spread to the other mortgage banks too, thereby jeopardising financial stability. if a mortgage bank chooses to issue covered bonds, it must take on the responsibility linked to ensuring the robustness of its business, even if housing prices fall. it is possible to ensure this robustness within the existing legislative framework, e. g. by introducing lower ltv ratios for loans based on covered bonds or by ensuring a sufficient buffer of capital well in advance. * * * * thirdly, the first deferred - amortisation loans, which were introduced about 10 years ago, are due to expire soon. the 10 - year limit was introduced to ensure that mortgage banks took the value of the underlying collateral into account. and that is indeed relevant today. bis central bankers ’ speeches a deferred - amortisation loan may be the right choice for the individual homeowner. but since mortgage banks granted deferred - amortisation loans right up to the ltv ratio of 80 per cent in the boom years with soaring housing prices, it is hardly surprising that some homeowners now find that their properties cannot sustain the loans. this has triggered a debate on whether it is necessary to take steps to expand the existing framework for prolonging deferred - amortisation loans. i cannot recommend that. it would not support the robustness of the danish mortgage credit system if homeowners do not reduce at least the peak of the loan that exceeds 80 per cent, especially since the rate of interest is currently close to zero – much lower than it was when these loans were raised. and according to danmarks nationalbank ’ s calculations most homeowners are able to meet the extra costs of financing the remainder via a more expensive bank loan with amortisation. so all in all, i think you are able to address these challenges yourselves if you take a slightly more conservative approach to lending. avoid going right to the limits – that will increase robustness. * * * the first meeting of the systemic risk council was held yesterday. the council discussed the current situation and risks to financial stability in denmark. i am pleased that the council is now in operation. an important lesson from the financial crisis has been that it is necessary to focus on systemic risk. the council is to contribute to preventing and addressing future systemic financial risks, thereby shielding the real economy and the financial system against a new financial crisis. obviously we cannot avoid normal cyclical fluctuations.