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

nils bernstein : recent economic and financial developments in denmark speech by mr nils bernstein, governor of the national bank of denmark, at the annual meeting of the danish bankers association, copenhagen, 5 december 2007. * * * for some years, the global financial system has been characterised by high growth and increasing business volumes. there has been considerable innovation, many new products and business concepts have emerged. earnings have been high. the largest global banks'return on equity has been steadily increasing for a number of years and exceeded 20 per cent on average in the 1st half of 2007. a sudden setback came over a few days in the summer. for a while the us housing market had been regarded as vulnerable. losses on subprime mortgages were increasing, but this market was not assessed to be sufficiently large to have an impact on global financial stability. moreover, the launch of new financial instruments seemed to have helped to spread the subprime risk among many different investors. this assessment proved to be wrong. via structured credit products, investment vehicles had invested in subprime mortgages. to finance these investments, they had issued short - term securities. it turned out that large banks were closely linked to these investment vehicles via liquidity lines and / or ownership. consequently, it was also difficult to assess the banks'potential losses on subprime mortgages, and uncertainty arose as to who ultimately bore the subprime risk. in next to no time, some of the most liquid markets with the highest ratings came to a standstill and it became difficult to issue short - term securities guaranteed by gilt - edged banks. throughout most of the world, banks concentrated on securing their own liquidity and were hesitant to lend excess liquidity to other banks – especially if the maturities exceeded a few days. two german banks experienced difficulties as a result of exposures to investment vehicles. one uk bank was brought to its knees, not by subprime mortgages, but because its business model was based on regular access to financing in the financial and money markets. we even saw the unusual sight of depositors queuing outside a bank to withdraw their deposits! this marked the beginning of the liquidity crisis that has – to varying degrees – characterised the financial and money markets in large parts of the world since july. over the last four months, the central banks in the usa, the euro area and the uk have regularly provided collateralised liquidity to the market in order to stabilise short - term interest rates