COPENHAGEN - THE Danish parliament passed an emergency bill on Friday to set up a fund worth 35 billion kronor (S$8.7 billion) to aid banks and their customers threatened by the global financial crisis.

'The Act protects the deposits, regardless of size, made by all personal and corporate customers of Danish banks and the banks' liabilities to financial lenders,' Economy Minister Lene Espersen said afterwards.

'With the new Act, Danish and international financial institutions can safely lend funds to banks in Denmark,' Mr Esperson said in a statement.

'The loans are fully guaranteed,' he said, adding, 'Only creditors related to covered bonds and holders of subordinated debt are not covered.'

Under the plan, Denmark's 140 banks are to inject 35 billion kronor, the equivalent of two percent of the country's gross domestic product, into the fund over the next two years.

The fund will be used to assist financial institutions in difficulty and guarantee the deposits of customers, including in subsidiaries of Danish banks abroad if necessary.

The government will cover eventual losses of more than 35 billion kronor in case for example of a bank collapse.

In passing the bill, parliament demanded that the country's financial sector show 'restraint' over the next two years, controlling expansion and using the period to 'consolidate'.

Political parties which voted almost unanimously for the bill, said banks should also pay no dividends and stop acquisitions and stock option schemes.

'I'm very pleased that we've ensured stability in Denmark in this difficult time for the global financial system,' Mr Espersen, who is also deputy prime minister, said.

'With the legislation, we have established a good balance that ensures that the financial sector assumes substantial co-responsibility in this situation.'

The bill, which is retroactive to October 5 and effective until September 30, 2010, was introduced by the centre-right government and approved by all parties except the extreme-left opposition Unity List.

'At the same time, we have decided to temporarily prohibit short-selling to avoid speculation in falling share prices,' Mr Espersen added. -- AFP