DANISH BANKS

One of the things I like about living in Denmark is the large number of small banks. My personal bank is Vestfyns ("West Fünen") Bank, which has just seven branches; four on the island itself, and three just over the Little Belt on Jutland. They are mulling over the idea of opening a branch in the big city of Odense, which would be a major development. For U.K. readers, imagine living in (say) North East Essex, and banking with the Bank of North East Essex.

The great advantage of a small bank is that you can deal with human beings. I know most of the four or five staff in my local branch, not least because I meet them in other contexts. When I ring up the bank, I am having a conversation with an acquaintance, who recognises my voice. That makes security issues much less of a hassle. They will, for example, give me account information without making me go through the equivalent of airport security.

There is no disadvantage with technology; I have internet banking, and debit cards like everybody else. My forex rate will be slightly worse than if I banked with (say) Danske Bank. But let's be honest, how often do I buy forex?

All in all, a successful rural organisation, which makes money by taking in local residents' cash and deposits, lending them out at higher interest rates to local businesses and home owners, and paying staff a modest amount from the difference.

There is only one problem with this business model; it is rather dull. That's as it should be, in my view, but boredom has been one of the great (and least reported) villains of the recent financial crisis. All across Denmark - and other places - a generation of rural and small-town bank managers decided that they should spice up their lives by getting involved in all sorts of new products (notably derivatives and commercial property) and in places further away from the head office than a bicycle ride. The predictable result was a mess, as losses on one particularly egregious deal wiped out profits on lots of bread and butter business. Over the course of the past few years, a whole series of small savings banks and regional banks in Denmark have gone bust; among them Roskilde Bank, Amager Bank and Fionia ("Fünen") Bank. Yesterday a local bank in north west Jutland, which has traditionally made its money through lending to local pig farmers, went bust after its loans to a German solar power manufacturer went sour. That's a typical example.

The danger now is that there will be a rush of further consolidations and takeovers in the Danish banking sector, that could lead to the sort of oligopolistic market that exists in (for example) the U.K. Although that might make sense from a purely financial point of view, it would be a bad thing for the consumer. I no longer have a U.K. bank account; and I was unhappy with my bank for most of the 20 years before I closed the account last year. Here's hoping that Vestfyns Bank can stay independent for a while yet. I rather like talking to humans.

Walter Blotscher