No European country has had as many bank failures as Denmark in recent years. That is deliberate: the country has put in place a resolution regime for banks that means when they fail, investors in banks’ senior debt could take a hit.

More than a dozen of Denmark’s 100 or so banks have failed since the crisis, reflecting the country’s status as the worst hit by the economic turmoil apart from Iceland because of a deep recession and high loan losses.

However, the latest failure of a lender – that of Tønder Bank earlier this month – has sparked off another debate about just how safe the country’s banking sector is. The reason is that Tønder was not one of about 10 banks on the Financial Supervisory Authority’s intensified supervision watchlist.

That has sounded alarm bells at the FSA, among politicians and at investors looking at other banks in one of the world’s largest markets for covered bonds backed by mortgages.

Benny Engelbrecht, a member of the governing Social Democrat party responsible for business matters, has said that a closer look is needed at the FSA’s role.

The FSA for its part says it is not able to regularly monitor all banks, inspecting institutions – which together account for about 3.2 per cent of loans in Denmark – on its intensified supervision list once a year. It also looks more regularly at big banks such as Danske Bank and Sydbank, but otherwise leaves other lenders for four to five years between inspections.

Tønder failed after an FSA inspection found it had under-reported its bad loans with the new losses enough to wipe out its capital. Sydbank agreed to take over its customers and balance sheet that same weekend, meaning the bank did not have to close down.

Eivind Kolding, Danske’s chief executive, says: “It is no drama. But even though it is a very small bank it does create some uncertainty, especially far away from Denmark. It is unwelcome to experience bank failures like this.”

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