European Union allows Denmark to bail out Roskilde Bank

Roskilde BankIn the latest global banking bailout, the European Union gave Denmark permission to rescue Roskilde Bank, which has been weakened by the subprime housing crisis. This is the first time Denmark’s government has intervened to save a bank.

Roskilde Bank, one of the largest in Denmark, will receive liquidity assistance from the Danish central bank to cover losses from loans given to home buyers with poor credit. Roskilde raised the alarm that falling home values and weakened global financial markets had forced the bank to make huge write-downs on many of its loans.

After trying unsuccessfully to find a buyer for the bank or raise cash by selling share capital, Roskilde asked the Danish National Bank to step in and provide the liquidity needed to cover its loans. EU regulators agreed to this move, which will provide up to US$156 million to cover any future losses.

According to EU regulations, member nations of the EU cannot provide excessive cash flow to private businesses as this would give an unfair advantage to select companies. Denmark has promised to give details on a plan to restructure the bank or proof that the loan had been paid back and the guarantee terminated within the next six months, the EU reported.