New bank collapse affects us all

All Danes will feel it in their personal finances if the crisis-ridden Vestjysk Bank collapses – even though the bank has neither customers nor shareholders.

A collapse will make it more expensive for all Danish banks to borrow money abroad, which can ultimately intensify the economic crisis, reports financial daily Børsen.

On Friday, Vestjysk Bank sent a new wave of fear through the financial sector with a downward revision of its forecast for 2012.  The bank, headquartered in the town of Lemvig, now expects a loss of DKK 1.15 billion in 2012.

The bill will be forwarded

The bank’s share price fell by almost 20 percent as the news spread:   according to financial experts, however, this is nothing compared to the potential consequences for all bank customers in Denmark if Vestjysk Bank collapses.

A collapse would damage the Danish financial sector’s reputation abroad and make it more expensive for the banks to obtain capital in the international money markets. This bill would be quickly passed on to private customers and companies.

“If it happens to a bank this size, it can make headlines abroad and negatively impact the bank sector, ultimately resulting in more expensive funding,” said Jesper Rangvid, professor at Copenhagen Business School, to Børsen.