of the crisis would be no mean feat. we should not harbour unrealistic ambitions of growth that cannot be achieved in the present circumstances. bis central bankers ’ speeches the sovereign debt crisis leaves its mark in practically all areas, and the european banks play a major role in the crisis. in the eu, the largest banks were stress tested in the summer of 2011, and in the autumn a capital test was performed of the banks with market valuation of government securities. the banks should have a core tier 1 ratio of 9 per cent as a buffer against the storm. if they do not meet this requirement, they should seek to raise capital and retain profits. ultimately, government capital injections may be required. moreover, there is agreement in the eu that it should be possible for member states to decide to provide more individual government guarantees to their banks on uniform conditions, along the lines of the scheme we have applied in denmark. indeed, bank rescue package 2 means that there is still heavy government involvement in the danish banking sector by way of both government capital injections and individual government - guaranteed bond loans. these measures are temporary and were intended to provide the necessary breathing space to adjust the capital base, sources of funding and business models. right now it looks as if the danish banks will generally be able to stand on their own feet when the government guarantees expire. the banking sector is reasonably well capitalised. this is what danmarks nationalbank ’ s stress test shows, and it is confirmed by the european stress and capital tests. all the same, some banks still have a weaker point of departure and will find it difficult to obtain funding when the government - guaranteed loans expire. one reason could be that they still hold bad assets, combined with a weak capital base. this is where the financial stability company could be relevant. in danmarks nationalbank ’ s view, denmark should not address these specific problems by deciding to introduce general access to government guarantees, as provided for by the ecofin. this will merely extend the life of an unsustainable business model. one element of a solution that does not involve new government guarantees is danmarks nationalbank ’ s expansion of the collateral basis to include banks ’ lending of good quality. this will provide a last - resort funding opportunity for the banks. at the same time, this lending may be included in the banks ’ liquidity, even if it has not been pledged to danmarks nationalbank, provided that the requirements are met. in danmarks nationalbank

- exchange - policy competence are not likely to be delegated to the home rule of the faroe islands. a currency union would thus entail that the faroese authorities acknowledge - formally and clearly - that the decision - making competence regarding monetary and foreign - exchange policy rests solely with the danish national authorities, including danmarks nationalbank. in a currency union the situation would, in practice, be unchanged. the currency would still be danish kroner, and danmarks nationalbank would continue to conduct monetary policy. this means that the faroese authorities would have no autonomy as regards monetary and interest - rate policy. this is unchanged from the current situation. thus, it appears that delegation of monetary and foreign - exchange policy to the home rule with simultaneous conclusion of a currency union with denmark would be a complex way of maintaining status quo. separate currency - fixed - exchange - rate policy if a decision is made for the faroe islands ( or greenland ) to have their own currency, the options are the same as in other currency areas. however, the currency would be very small, and the narrow business structure would present a number of special challenges. the “ strongest ” fixed - exchange - rate policy is a currency board, whereby the local currency is completely fixed vis - a - vis another currency. this regime is used today by e. g. estonia, which applies a currency board with a fixed exchange rate vis - a - vis the euro. an initial option for the faroe islands could be a currency board vis - a - vis the danish krone in a ratio of 1 : 1. a currency board entails the establishment of a central bank to set the monetary - policy interest rate and intervene in the foreign - exchange market to stabilise the exchange rate. however, the central bank ’ s options are rather mechanical. these - often statutory - restrictions on the central bank are imposed to ensure credibility. history shows examples of successful currency boards, e. g. estonia, and total failures, e. g. the currency board in argentina. a country opting for a currency board has to defend its own currency. in case of speculation against the currency no help should be expected from the country to whose currency the currency in question is pegged. speculation may therefore require dramatic interest - rate increases. elimination of the risk of collapse in the event of speculation requires a guarantee agreement with a highly credible external party. for the faroe islands, this could e. g. mean a guarantee from the