The capital base of mortgage banks must be at least 8 per cent of its risk-weighted assets. The capital base consists of core capital (Tier I) plus supplementary capital (Tier 2). Supplementary capital comprises subordinated loan capital and mortgages with joint and several liability.

Lending constitutes the largest balance sheet item. Loans to owner-occupied homes generally carry a risk weighting of 50 per cent and loans to public authorities a zero weighting. All other loans are weighted at 100 per cent.

Traditionally, Danish mortgage banks granted loans for which borrowers were mutually and jointly liable for the payment of the entire debt (joint and several liability). The own funds directive was amended to allow mortgages with joint and several liability to be included in supplementary capital during a transition period which expired in April 2001. The inclusion of mortgages with joint and several liability was scaled down during the period.

If a mortgage bank grants loans with joint and several liability such loans must be issued in series and a reserve fund must be established for each series. The bank thereby establishes liability groups which are, in principle, based on separate collateral pools.

The joint and several liability in a series will be invoked if the capital base of the series is exhausted and payment obligations on mortgage bonds issued from the series are not fully met.

In recent years, all bond series in Realkredit Danmark have been issued without joint and several liability.