very late stage. doubt about the viability of the business model will arise at a much earlier stage, namely when the mortgage bank can no longer maintain sdo status for bonds issued and fund itself on market terms. so it is crucial for the mortgage bank to have a reliable plan to minimise the risk that this situation arises. the plan should cover situations where only the mortgage bank itself is under stress as well as situations where stress affects the entire financial system. this has a bearing on the potential courses of action. in a situation where the entire financial system is under stress, the option to divest and access to new capital may be limited. in the event that a mortgage bank is deemed likely to fail, resolution procedures must be initiated. if this is to be effected in an expedient way, it is necessary to have a robust plan ready. that is the responsibility and task of the authorities. this task is fundamental to financial stability. together with the two resolution authorities – the danish financial supervisory authority and financial stability – danmarks nationalbank is therefore working actively with such plans for the systemically important financial institutions in denmark. the work on the resolution plans and the assessment of whether they will work involves a large element of learning by doing. it is not work that will be completed this year. and the plans will need to be updated on a continuous basis. the mortgage banks are fully comprised by the crisis management regime. however, there is one significant exemption, in that the minimum requirement for own funds and eligible liabilities does not apply to them. this means that bail - in is not an option in connection with resolution. instead, the mortgage banks must hold a “ debt buffer ” of 2 per cent of their lending. right now, it is an open question whether a plan for resolution of a mortgage bank can observe the resolution targets i have already mentioned without the bail - in tool. this also applies in relation to the special winding - up model which the mortgage credit act provides for. as we have previously said, it would have been better if a minimum requirement for own funds and eligible liabilities had to be set. in a resolution situation it would then have been possible for perform bail - in on uncollateralised liabilities to a sufficient extent to ensure the operation of the mortgage bank and the value of the sdos – thereby supporting confidence in the mortgage credit system. and the danish mortgage credit model would not have acquired yet another element that is not in conformity with the

rates to households may suffer a substantial loss of costumers. this would not only lead to a loss of deposits. a household typically relies on a single bank and potentially an associated mortgage bank as their provider of financial services. this means that for a bank, the loss of a household's deposits is likely to be associated with a loss of a wider range of business activities. the reduction in revenues from the decline in activity is likely to exceed the narrow benefits from lowering deposit rates. side 8 af 13 slide 20 : share of cash payments in denmark is declining steadily with negative policy rates one potential concern could be a significant hoarding of cash. so far, we have seen no signs of this in denmark. a potential explanation is that firms and institutional investors would face significant costs of handling, storing and insuring cash. and as i have already mentioned, households have not been met by negative deposit rates. another explanation is that danish consumers to an increasing extent seem to prefer electronic means of payments instead of cash – either by using credit cards or smartphones. this suggests that in denmark the inconvenience cost of cash is rather high. the declining use of cash suggests that in our case the effective lower bound of policy rates is well below the current level. slide 21 : stable circulation of large denomination notes any tendency towards using cash as a store of value should be reflected in a pickup in the circulation of large denomination notes. our bank note with the highest denomination is kr. 1. 000 ( approx. 135 euro ). the chart confirms that we have seen no substantial pickup in the demand for cash from households and firms. slide 22 : incentive to switch to cash depends on level and expected duration of negative rates an investor considering whether or not to circumvent negative interest rates by hoarding cash is interested in the differential between the shortterm interest rate and the zero rate that can be earned by holding cash. but it is also important for how long this differential is expected to persist. this is illustrated in the chart where the shaded areas provide a measure of the incentive to switch to cash. it is worth pointing out that based on this measure the incentive is significantly lower than in mid - february 2015 or a year ago. this underlines that the lower bound for the interest rates is substantially below the current level. slide 23 : mortgage rates and government - bond rates became negative in denmark, real estate is primarily financed by mortgage - banks issuing mortgage bonds. this means that mortgage rates are determined in