Finansiel Stabilitet must ensure the availability of cash funds for effective crisis management. The contingency set-up for crisis management is based on the two liquid funds, the Resolution Fund and the Deposit Guarantee Fund.

The two funds are based on contributions from financial institutions and are managed by Finansiel Stabilitet. Finansiel Stabilitet is responsible for the investment of the funds and the statutory use of the funds’ assets for crisis management of failing financial institutions. It is important to Finansiel Stabilitet that the management and investment of the two funds generate a market-conform return with low currency, interest rate and credit risk­, and that the available financial resources of each fund are at all times proportional to the fund’s potential liabilities. Finansiel Stabilitet has developed portfolio management policies for the two funds.

For assets placed in securities, a risk profile has been defined with an interest rate risk of about 2.5 years. In theory, a higher return can be achieved by placing in assets a couple of years out the yield curve without significantly reducing liquidity. At the same time, the intention of the investment strategy is to make long-term investments, meaning that short-term fluctuations do not warrant significant adjustment of the strategy. On this basis, no adjustments were made to the portfolio in 2022, when interest rate increases resulted in unrealised market value losses.

The trend reversed in 2023, and while the major central banks continued to raise their policy rates, the slightly longer interest rates fell. Danmarks Nationalbank most recently changed its rates on 14 September, when the CD rate was raised by 0.25 percentage points to 3.6%.

In the period leading up to the most recent change in interest rates, the mortgage bond portfolio generated a return equivalent to the CD rate, but in the fourth quarter the portfolio outperformed the CD rate, as illustrated in the chart below. The excess return is attributable to the sharp fall in government and mortgage bond yields. At the end of the year, we had thus generated a positive return of 5.2% compared to a return of 3.0% on placement at the CD rate.

The total return in 2023 on the managed mortgage credit mandates amounted to DKK 517 million, of which DKK 126 million was interest income and DKK 391 million market value gains. Compared with placement at the CD rate in Danmarks Nationalbank, the funds generated a positive excess return of DKK 221 million in 2023.

At 31 December 2023, the Resolution Fund and Deposit Guarantee Fund investments in short-term mortgage bonds totalled DKK 10.7 billion. In addition, the two funds had DKK 5 billion in cash deposits with Danmarks Nationalbank. Taking into account these cash deposits, the Deposit Guarantee Fund and the Resolution Fund posted total returns for 2023 of 3.6% and 4.7% respectively.