In the period from 2016 to 2024, the Resolution Fund is to build up assets to a level ensuring that it has financial means equivalent to 1% of the covered deposits of all institutions comprised by the Resolution Fund.

The build-up must be distributed as evenly as possibly until the target level has been reached, always with due consideration for the economic climate and the potential effects of pro-cyclical contributions on the financial position of contributing enterprises.

Pursuant to Commission Delegated Regulation (EU) 2015/63 of 21 October 2014 supplementing Directive 2014/59/EU of the European Parliament and of the Council with regard to ex ante contributions to resolution financing arrangements, the Resolution Fund is funded through an annual contribution. For small institutions, the contribution is generally determined as an administratively determined contribution, while a ratio-based contribution is determined for large institutions.

If the assets of the Resolution Fund exceed 1% of the covered deposits, the obligation to contribute will cease. Conversely, if the assets of the Fund are not sufficient to cover losses, costs or other expenses in connection with the resolution of an institution or entity, Finansiel Stabilitet may request payment of extraordinary contributions. Such extraordinary contributions may not exceed three times the most recent annual contribution paid. In addition, in case of insufficient funds, the Resolution Fund may raise loans in the market or from the corresponding resolution financing schemes of other countries. Moreover, Finansiel Stabilitet may raise state-funded re-lending to be used as loan financing of the Resolution Fund.

At 31 December 2022, the assets of the Resolution Fund amounted to DKK 6 billion, against a determined target level of DKK 8.3 billion. In recent years, Finansiel Stabilitet has observed annual increases in the covered deposits in Danish banks.

In 2021, like in previous years, Finansiel Stabilitet therefore decided to determine the target level on the basis of an estimated projection of covered deposits to 2024, which meant that the target level of the Resolution Fund was raised.

This practice is expected to be used in 2023 as well. Accordingly, a small increase in contributions from the comprised institutions is to be expected.

The Resolution Fund’s liquid assets totalled DKK 6 billion at 31 December 2022. Finansiel Stabilitet is responsible for ensuring that the available financial means of the Resolution Fund are from time to time proportionate with the Resolution Fund’s potential liabilities. As is the case for the Deposit Guarantee Fund, an overall investment profile has been adopted that is based on investments being made in low-risk cash funds.

Finansiel Stabilitet may take resolution measures in accordance with the Act on Restructuring and Resolution of Certain Financial Enterprises if the following conditions are met: (1) the Danish FSA has informed Finansiel Stabilitet that the bank is failing or is likely to fail, (2) the Danish FSA has informed Finansiel Stabilitet that there is no prospect that other measures, including measures taken by the private sector or the Danish FSA, within an appropriate time frame would prevent a resolution of the enterprise, (3) Finansiel Stabilitet assesses that a resolution is necessary in the public interest.

When these conditions are met, Finansiel Stabilitet may e.g. assume control over the enterprise, effect a full or partial sale of the enterprise, transfer all or parts of the enterprise to a subsidiary of Finansiel Stabilitet (bridge institution or portfolio management company) or write down or convert the enterprise’s liabilities.

In connection with restructuring and resolution, losses are generally to be borne in accordance with the order of priority of creditors. Moreover, the principle applies that no creditor may be placed at a financial disadvantage relative to a bankruptcy process.

This is to be assessed in a subsequent independent valuation. If it is assessed that there are creditors who have been placed at a disadvantage, they will be entitled to compensation from the Resolution Fund. See below.

Depositors may also be affected by restructuring and resolution measures, but the value of their deposits will never be less than the amount of coverage provided under the Deposit Guarantee Fund.

The Resolution Fund may be used to provide guarantees and loans etc. in connection with the use of restructuring or resolution measures. The Resolution Fund may also in special circumstances be used to directly cover a company’s losses generally when at least 8% of the company’s liabilities and total capital have been written down or converted. In such situation, the Resolution Fund may contribute assets equivalent to up to 5% of the enterprise’s liabilities and total capital. However, in the preparation of resolution plans, this option is not assumed to be used.

The legislative framework of the Resolution Fund and Finansiel Stabilitet’s restructuring and resolution activities is the Act on Restructuring and Resolution of Certain Financial Enterprises, see Consolidation Act no. 24 of 4 January 2019 and Executive Order no. 823 of 3 July 2015 on the Resolution Fund. In addition, executive orders have been issued on resolution planning and contingency resolution measures, see Executive Order no. 2018 of 26 October 2021, and on Finansiel Stabilitet’s use of resolution measures, see Executive Order no. 822 of 3 July 2015.

The Act on Restructuring and Resolution of Certain Financial Enterprises entered into force on 1 June 2015. The Act became effective for the Faroe Islands and Greenland on 1 January 2018 and 1 January 2020, respectively.

The rules implement Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 (BRRD) as amended by, among others, Directive 2019/879/EU of the European Parliament and of the Council of 20 May 2019 (BRRD II). With a view to achieving a uniform application of the rules, the European Commission issues delegated acts and implementing acts in this area.

On 11 August 2021, the Danish FSA decided that the Resolution Fund constitutes a public sector entity under Regulation (EU) no. 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms (CRR) and that exposures to the Resolution Fund are assigned a 0 risk weighting pursuant to Article 116(4) of the Regulation.