chooses to merge into one bank with branches in the various countries. in that case, the authorities in its home country – presumably sweden – would have the principal responsibility for activities in denmark, just as the danish authorities currently supervise e. g. danske bank's activities in its swedish branch. that is how the eu legislation is designed. this legislation is suitable if a bank has a relatively small branch in another country. however, the swedish authorities cannot hold responsibility for nordea's impact on financial stability in denmark. it is still denmark's responsibility that our financial system functions – even if we do not have insight into almost one quarter of the danish banking market. consequently, danmarks nationalbank is of the opinion that where large branches are involved that may affect financial stability in another member state, we need more binding cooperation between the authorities of the home country and the host country than eu legislation provides for. both the supervisory authorities and the central banks in the nordic countries have concluded collaboration agreements relating to cross - border financial enterprises. we have a long - standing tradition for nordic cooperation, and presumably we will be able to negotiate the necessary insight into large danish branches of banks domiciled in other nordic countries, and vice versa. however, the system should also be designed to handle business integration between north and south within the eu. in this respect, the tradition for cooperation is less well - established than among the nordic countries. it may therefore be necessary to rethink the eu legislation so that the individual member states are still empowered to safeguard financial stability – even with the presence of large foreign branches whose operations may have an impact on the financial system. the eu needs a legal handle to ensure that the authorities of the host country gain the necessary insight into a large branch of a foreign bank. the problem is naturally not acute, but amendments to eu legislation take their time, and we do not know when the need may arise. this is an issue that we will pursue in cooperation with other danish authorities. chart 1. lending growth and losses and provisions per cent 3. 0 per cent 2. 5 2. 0 1. 5 1. 0 0. 5 0. 0 - 5 - 0. 5 - 10 - 1. 0 annual lending growth 14 - 12 - 2006 losses and provisions ( right - hand axis ) danmarks nationalbank chart 2. credit risk and average lending growth, 2000 - 05 credit - risk measure, per cent 2. 0 1. 8 1. 6 1. 4 1

assessments of financial stability. our ambition is to learn more about how the banks affect each other and the economy in stress situations. another task for danmarks nationalbank in relation to financial stability is to ensure that denmark has a secure and effective financial infrastructure that can safely be used for settlement of payments, securities trading and other financial transactions. danmarks nationalbank now has a statutory obligation to oversee payment and settlement systems in denmark. part of the imf's fsap was to assess the core elements of the danish financial infrastructure in relation to international standards. the imf recommended a few changes. danmarks nationalbank will work with those responsible for the systems to ensure that the necessary improvements are made. however, we will not blindly adhere to all recommendations. for example, the imf recommends that we establish a buffer pool to ensure the settlement of securities transactions and retail payments even if the largest participant is not able to settle its payment obligations. danmarks nationalbank finds that the best safeguard is to ensure that participants have easy and flexible access to liquidity, combined with participants'large portfolios of securities that can be pledged as collateral for loans from danmarks nationalbank. consequently, we do not currently see any need for special measures to ensure settlement in the danish systems. a third area that we are looking at is situations where the financial system is affected by dramatic external events. these could be acts of terrorism, widespread epidemics, natural disasters or other situations where the financial system threatens to collapse. danmarks nationalbank chairs a task force to ensure coordination of the financial institutions'business continuity plans in such situations. finally, danmarks nationalbank acts as lender of last resort to the danish banks. danmarks nationalbank can extend loans to a bank that urgently needs liquidity and cannot procure it in the market, even though the bank is solvent. fortunately, we are seldom called on to do that. should a situation occur where it is necessary to rescue an ailing bank, danmarks nationalbank's position is that a market - based solution should be found. nothing definite can be said beforehand about danmarks nationalbank's role. it would depend on a concrete assessment of the situation and the – direct or indirect – consequences for the danish banking system and danish society. however, we can look at what danmarks nationalbank has done on previous occasions. in a number of cases, danmarks nationalbank has played a role in connection with public intervention to help ailing banks – by