The Danish Financial Supervisory Authority has intensified supervision of highly leveraged funds investing in Danish mortgage bonds and of banks providing them with repo financing. Some of the largest funds have leverage exceeding 20 times investor capital. At the end of 2025, the largest leveraged funds held DKK 208 billion of mortgage bonds, about 6% of the DKK 3.5 trillion outstanding market, up from 4% at the end of 2022. Their share of short dated bonds rose to about 8% from 4.5% over the same period. The authority will increase data collection and ongoing monitoring of individual participants and the repo and mortgage bond markets. Supervision of fund managers will focus on whether leverage, liquidity buffers and holdings of liquid, unencumbered assets match each fund’s strategy and risks. Banks will face closer scrutiny of how they identify, monitor and manage counterparty, concentration and market risks from repo lending. The authority highlighted the potential for widening credit spreads to generate large fund losses and liquidity demands, while defaults or collateral shortfalls could leave banks holding unwanted bonds or selling into a falling market.
2026-09-28Danish Finanstilsynet
Danish Financial Supervisory Authority strengthens scrutiny of highly leveraged funds and bank repo lending
The Danish Financial Supervisory Authority has strengthened supervision of highly leveraged mortgage bond funds and banks providing them with repo financing. Some funds have leverage above 20 times investor capital, while the largest funds held DKK 208 billion of mortgage bonds at the end of 2025. Scrutiny will focus on fund liquidity and leverage controls and banks’ management of repo related counterparty, concentration and market risks.