to discontinue mortgage banks by winding them up – is not credible. the mortgage banks are closely interwoven with the rest of the financial system due to the role of mortgage bonds in liquidity management. so the discontinuation of a mortgage bank would have a knock - on effect on the rest of the financial system. at the same time, the sector concentration is so high that much of its lending capacity would vanish if any one institution ceases to exist. if an acceptable resolution scheme for failing sifis is not put into place, everyone will expect the government to save them. mortgage banks operate under an implied government guarantee as long as they are exempt from bail - in and mrel. when owners and creditors believe that an institution will be saved by the government, they will assume greater risks than otherwise. after all, the taxpayers will foot the bill if things go wrong. the absence of credible resolution plans for sifi groups and mortgage banks distorts incentives and competition within the sector. indeed, the competition council's conclusion is that credible resolution plans must be prepared for the large mortgage banks and that they must be supported by mrel or perhaps by additional capital. if the exemption is repealed, this will increase competition to the benefit of borrowers. slide 7 : should the government pay? the purpose of the bank recovery and resolution directive was to ensure that banking crises do not jeopardise whole economies. with the exemption applying to mortgage banks in denmark, we have chosen to keep up the risky ties between the government and the financial sector. we should know better than that. a competition - neutral and credible mrel ensures that all credit institutions – irrespective of size and systemic importance – can be resolved without the use of taxpayer funds and without devastating effects on the economy. once that is in place, credit institutions can be treated like all other private sector corporations : shareholders and creditors risk losing their money and management their jobs. page 7 of 7 danmarks nationalbank finance denmark's annual meeting lars rohde, governor by royal appointment, 4 december 2017 the banks are stepping on the accelerator build - up of financial risks central bank digital currency three key principles for mrel from : explanatory note to act on restructuring and resolution of certain financial enterprises, section 24 ( 4 ). who pays the bill? tax payers shareholders and creditors

them increases counterparty risk, with large possible losses ; it creates legal and reputational risks that can undermine the bank ’ s prospects for growth and even call its stability into question. this is before our eyes in a case now being clarified. an inspection that the bank of italy began at a bank in january of this year found that it had sold business customers complex derivative products, highly exposed to an increase in interest rates. owing to market developments, these derivatives have caused a sudden surge in the indebtedness of the customers who had bought them. the result was an increase in the bank ’ s exposure to counterparty risk as well as to legal and reputational risks. the bank of italy intervened ; it is following the case with the utmost attention. proper conduct, transparency and adequate organization are essential to every bank that alongside its traditional credit operations sells complex products. there must be a clear line of decision - making connecting top management to operating decisions and to customers ’ demands. transparency, proper conduct and the protection of bank customers the bank of italy ’ s supervisory provisions on compliance have been approved and will shortly be published. they lay down general principles, granting banks discretion in selecting the most effective organizational arrangements. banks ’ governing bodies decide the overall design of the compliance function and monitor its actual operation. in all customer relations, transparent and correct information increases the public ’ s range of choices, fosters competition and prevents legal disputes. lawmakers and regulators have become more responsive than in the past to the need to ensure correct relations ; banks themselves are rapidly becoming aware that the point is not only to defend and enhance the reputation of the industry, but also to gain an important tool of competition. as i have said on other occasions, it is appropriate for regulators to intervene where economic agents and the market are unable by themselves to ensure adequate standards. self - regulation, if based on agents ’ clear determination to pursue its underlying objectives, can be more effective than mandatory rules in many cases. the most powerful tool for pursuing the interest of consumers remains competition, which can function well, however, only if transparent terms and conditions are ensured and the obstacles to customer mobility eliminated. this requires rules at various levels ; statutory provisions, administrative regulations, self - regulation and competition are complementary instruments. i therefore take note with favour of the action plan abi has just adopted to improve relations with customers. the intent to capitalize on cooperation with consumer associations and the authorities is commendable, the declared objectives endorsable : to