the markets. the effect soon spread to more creditworthy securities. in the money markets, the uncertainty was reflected in a widening spread between collateralised and uncollateralised money - market loans. the confidence crisis developed in stages over the latter part of 2007 and up to september 2008. in august 2008, danmarks nationalbank with a government guarantee and the danish contingency association acquired roskilde bank on the brink of collapse. this was an important medium - sized bank, with a significant funding in foreign currencies. this should be seen in the light of a danish banking sector with a total deposit deficit of 600 billion kr. danmarks nationalbank ’ s primary reason for stepping in was to avoid a systemic crisis. in that situation we couldn ’ t accept doubts that loans to danish banks would be honoured. capital outflows from smaller areas the financial crisis intensified from mid - september 2008 after the collapse of lehman bros. risky assets such as shares and credit bonds plummeted. the heightened uncertainty prompted investors to seek safe havens. this led to portfolios shifts towards more secure assets. there was a worldwide trend for foreign exchange to flow out of small capital areas and into larger ones. in other cases, portfolios were actually closed by investors who had bought assets, financed by short - term loans in foreign currency – such as dollars – that were subject to regular renewal. investors who were unable to obtain renewed funding in early october 2008, when the international loan markets 1 froze, were compelled to sell assets immediately, regardless of the price. the interest - rate increases by danmarks nationalbank, – which i will return to – did not have any impact on investors, who were forced to sell out, when the global loan markets contracted. liquidity constraints – the need for euro and dollars initially the money - market turmoil was strongest in the dollar market, and many financial institutions outside the usa experienced a shortage of dollar funding. as the crisis escalated, the euro market was eventually also affected. in the spring of 2008, the ecb established a swap line with the fed, with a view of lending dollars to euro area banks. the majority of the danish banks did not have access to this facility. many financial institutions in europe already depended on short - term funding in both dollars and euro. as a result, most of them were on the same side of the order flow. moreover, the usual dollar funding channels dried up, to a certain extent because the suppliers themselves had an

danmarks nationalbank to be able to defend the krone. the currency positions of the danish banks in the market were, on the whole, not unfavourable to the krone ( chart 2 ). the banks reduced their market positions, to more or less neutral levels, but never held long currency positions, when danmarks nationalbank made intervention purchases to support the krone. this reflected some degree of confidence on the part of the danish banks, that danmarks nationalbank would be able to observe the unofficial de facto band. there was anecdotal “ evidence ” that certain foreign investors were speculating against the krone ( chart 3 ). the first speculation rumours concerned options, with a strike price outside the implicit narrow band around the central rate. for example, a large hedge fund was reputed to have bought options against the krone weakening. the size of the financial backing behind this speculation is, however, uncertain. “ out - of - the - money ” options involve little cost, but hedging by sellers of such options may have led to considerable sales of kroner. generally speaking, international speculators had a certain interest in testing the strength of the support for the fixed - exchange - rate policy. this caused further uncertainty about the krone. intervention the spring of 2008 saw gradual weakening of the krone, and danmarks nationalbank danmarks responded by intervening – to a limited extent ( chart 4 ). as late as in july 2008, we mirrored the ecb when it raised its key interest rates. danmarks nationalbank took the usual course of action when the krone came under pressure. first, we sell foreign exchange for kroner. if this has not had the desired effect after some time, we raise interest rates. to counter the tensions in the dollar market, danmarks nationalbank intervened in the fx swap market on 18 september, i. e. before the crisis really erupted. dollars were offered against kroner for a total of dkk 3 billion with a maturity of 7 days. likewise, in early october, danmarks nationalbank intervened in the euro market, offering euro for a total of dkk 17 billion with maturities of 7 days and 1 month. danmarks nationalbank had not previously intervened in the fx swap market in recent times. the intervention in the fx swap market turned out to have only a temporary impact on the market. the danish market for euro and dollar liquidity is considerable, and intervention via the