solved by the mortgage credit system. fundamental investor confidence in the creditworthiness and liquidity of the bonds is at the core of the danish mortgage credit system. it is essential to preserve this confidence and thus the safety of the system. the danish mortgage credit system plays a pivotal role in lending in denmark, and mortgage bonds are important instruments in the banks ’ liquidity management. in recent years, the credit rating agencies ’ changing views of the danish mortgage credit system have attracted much attention – by the mortgage banks and by the press. while there is general agreement that danish mortgage credit starts with an “ a ”, the question is how many “ a ” s a given business model and portfolio composition should have. today, i would like to make it clear that the purpose of regulating mortgage credit is not to ensure that all mortgage bonds are always “ triple a ” rated. regulation sets limits, within which the mort - gage banks must operate. where the mortgage banks choose to position their business models and risk profiles within these limits is up to the individual mortgage bank. a “ triple a ” rating may require a considerable margin to the limits – and if so, the mortgage banks must ensure precisely that if they want this rating. from a legislative perspective, it is fairly straightforward to make mortgage credit almost 100 per cent risk free. if the ltv limits are sufficiently low and the maturities of bonds must match the maturities of the loans, i am sure that this is possible. but at present legislation lays down minimum requirements that give the mortgage banks flexibility and room for manoeuvre. that imposes an obligation on each mortgage bank to keep a suitable margin to the limits and avoid a race to the bottom. bonds with the option of maturity extension – including if the interest rate trigger is activated – are gradually becoming the market standard as short - term bonds are refinanced. experience from the auctions shows that demand remains high – investors have accepted the new market standard. as we had expected, they do demand a modest excess yield of a few basis points, but they still bid heavily at the auctions, where bid - to - cover ratios were high in august and september. i am actually pleased to see that investors put a price on the interest rate trigger. that was basically the objective : to give investors an opportunity to calculate a price for the potential maturity ex - tension of bonds. with the interest rate trigger, it is not up to the authorities, in practice, to decide whether or not

financial resilience. so it is important for homeowners to build up home equity over time, thereby moving away from the maximum ltv ratio. to supplement the supervisory diamond, danmarks nationalbank therefore recommends introducing legislation to reduce the maximum limit for deferred amortisation loans as a ratio of the value of the home at the time of mortgaging. this may cause house prices to rise a little more slowly for a while, but the effect will be limited. the reduction should apply to deferred amortisation loans underlying covered bonds, covered mortgage bonds or mortgage bonds issued by banks and mortgage banks. in this way, borrowers will automatically build up a certain distance to the maximum ltv ratio over time. that will further underscore the mortgage credit system ’ s high degree of security – even if house prices are plummeting. finally, let me turn to the banking union. some of you have expressed concerns that enhanced banking cooperation might not leave room for the danish mortgage credit model. i understand your concerns. as you know, it has required considerable political muscle in recent years to ensure exemptions for danish mortgage credit in european regulation. but i am not in doubt : denmark, danish homeowners and the danish mortgage credit sector have a strong interest in danish membership of the banking union. a good way to ensure the future of danish mortgage credit is to participate in the single supervisory mechanism – preferably at an early stage when habits have not become ingrained yet. outside the banking union, anything could happen. suppose that all sorts of decisions are made by those in the union – why should they consider the wishes of a marginal little player from the north who does not even want to join in? they will not have evil intensions, but on the other hand they are hardly likely to worry too much if gains within the union come at a price for those outside the union. if denmark joins the union, it will be a different situation altogether. can the mortgage credit sector participate in this cooperation? yes – i cannot imagine denmark joining the union at expense of the mortgage credit. besides the fact that the ecb has a general obligation to take different business models into account, i believe there is a real chance of obtaining further security in the form of an explicit statement in a potential danish participation agreement. the ecb would have to help find sensible solutions for the danish mortgage credit sector, and along with the familiar faces from arhusgade they will be paying