is even greater than the average numbers indicate. badly managed banks have been a key factor behind the sector ’ s problems in the years after the financial crisis and the preceding overheating of the economy. i welcome the danish bankers association ’ s new code of management. in your own words, this code is to address the “ individual cases of bad management, mismanagement and inexpedient management structures seen during the crisis ”. * * * turning to the international agenda, negotiations on a banking union are currently underway. danmarks nationalbank is following these negotiations closely. no decision has yet been made about danish participation, but the banking union will, in any case, have great importance for denmark. even if denmark opts out, two of the largest banks in denmark will be subject to supervision by the ecb in relation to considerable parts of their euro area activities. at present, these two banks account for more than 50 per cent of total lending by danish banks. at the same time, it is essential to all eu member states that the project is a success. financial stability in the euro area is a prerequisite for financial stability throughout the eu and has a large impact on future growth in the eu. at the same time, it is important that the banking union strengthens the single market for financial services. a well - functioning banking union requires strong confidence in the single supervisory authority. an important step will be taken with the ecb ’ s assessment of the assets and risks of credit institutions subject to direct supervision ; this will take place in the coming year. a credible exercise of that nature will give the banks involved a solid, and in some cases much - needed, stamp of quality. it is positive that the danish financial supervisory authority plans to replicate this exercise for the large danish banks, to the extent that it is possible. in this context i would like to mention the results of danmarks nationalbank ’ s most recent stress test, which will be published soon. they show that in all the stress scenarios the large banks have a common equity tier 1 ratio of more than 8, which is the threshold in the ecb ’ s stress test. recent years ’ improved capitalisation is a major reason for this. danmarks nationalbank generally takes a positive view of the banking union outlined. it is an important step towards strengthening the single market for financial services and hence cross - border competition. competition forces both banks and firms to be “ on their toes ” and improve their skills. that

” on a bank. it is very unlikely that this will happen, but the consequences could be enormous. at danmarks nationalbank we have pointed out this risk, and the rating agencies have also focused on it. let me make it very clear that in danmarks nationalbank ’ s opinion compulsory, conditional maturity extension provides a solution to this problem. the bill leaves no doubt as to what will happen if interest rates suddenly rise very sharply or an auction fails. the refinancing risk is transferred to investors. for the mortgage banks, risk is, once again, limited to credit risk, which was the original idea behind the balance principle. it is important that the bill includes an interest - rate trigger, so that maturity extension takes effect in connection with very large, but well - defined interest - rate rises. this makes it possible for investors to determine the price of maturity extension. this structure does not affect danmarks nationalbank ’ s role as lender of last resort, but it ensures that the mortgage banks ’ business model does not rely on danmarks nationalbank bis central bankers ’ speeches as back stop. in connection with the preparatory work, danmarks nationalbank indicated that the bill does not in itself give reason to change danmarks nationalbank ’ s collateral basis. the bill also presents a credible resolution model. all doubts will be eliminated as to what will happen to mortgage bonds that have not been prefinanced if a mortgage bank is wound up. the bonds will be converted into long - term fixed - rate bonds with the same payment series as the underlying loans. irrespective of the bill, borrowers with variable - rate loans will remain sensitive to general developments in interest rates. as long as the danish economy is in synch with the international economy, increased interest - rate sensitivity may dampen fluctuations in the economy and have a stabilising effect. variable - rate loans have unquestionably helped to stabilise the housing market during the financial crisis. variable - rate loans entail a payment risk for the borrower, while fixed - rate loans entail a price risk. in order to maintain investor confidence in the mortgage - credit system, the mortgage banks should take a portfolio view when assessing their total lending. the future supervisory diamond for mortgage banks will lay down the overall framework for the mortgage banks ’ risk profile, but first and foremost it is the mortgage banks themselves that are responsible for their own risk management. in the interests of investor confidence and financial stability the