(Adds comment from Danske Bank)
By Teis Jensen and Jacob Gronholt-Pedersen
COPENHAGEN, Nov 30 (Reuters) - A money laundering scandal at Danske Bank involving billions of euros of suspicious flows is serious enough to potentially affect the country's financial stability, the central bank warned on Friday.
Denmark's state prosecutor filed preliminary charges on Wednesday against Danske Bank, Denmark's largest lender with a balance sheet 1-1/2 times Danish gross domestic product, for alleged violations of the country's anti-money laundering act in relation to its Estonian branch.
In a report published on Friday the central bank said money laundering issues at a single bank could spread to the entire financial sector.
"It's a question of trust, if there is a spillover effect to the rest of the sector. We haven't seen that yet, but that is the concern," Karsten Biltoft, assistant governor and head of financial stability, told Reuters.
Danske Bank in September disclosed payments totalling 200 billion euros ($227 billion) through its Estonian branch, many of which the bank said were suspicious. It is being investigated by authorities in Denmark, Estonia and the United States and could face sizeable fines.
The bank said it had taken action to tackle the issue.
"We agree completely that it is crucial for the confidence in us as banks that we do everything we can to combat economic crime and money laundering," a Danske Bank spokesman said in an email.
"Therefore we have over the recent years invested significantly in IT systems and in educating our staff, and the number of employees in this area has been quadrupled," he added.
Biltoft said it is unlikely Danske Bank would be met by the same severe sanctions as those which led to the collapse of Latvian bank ABLV.
"We have of course looked at it and thought about it," Biltoft said. "It is very unlikely, but if it did happen it would be quite terrible. If you imagine that Denmark's largest bank would close, that would be really bad, to put it nicely."
ABLV liquidated itself in June after being accused by the U.S. Treasury Department's Financial Crimes Enforcement Network of money laundering, violating sanctions on North Korea and using bribery to influence Latvian officials.
Danske has said the involvement of U.S. authorities in inquiries into alleged money laundering is very different to the case of ABLV.
The central bank's report on financial stability said there was a need for coordinated efforts between firms and authorities to combat money laundering, calling for better European cooperation.
"Money laundering is a cross-border problem, which demands cross-border solutions. And at a European level the Banking Union is such a solution," Biltoft said.
Prime Minister Lars Lokke Rasmussen has said the Danske Bank case has increased the chances of Denmark joining the European Banking Union, set up to ensure banks are better supervised. A decision on the matter is due in 2019. ($1 = 0.8792 euros) (Reporting by Teis Jensen and Jacob Gronholt-Pedersen Editing by Adrian Croft and David Holmes)