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Tougher demands for Sweden's biggest banks

Published: 25 Nov 2011 12:13 GMT+01:00
Updated: 25 Nov 2011 12:13 GMT+01:00

Sweden on Friday announced plans to beef up the capital adequacy requirements for the country's four largest banks to levels higher than required by international regulations in an effort to help protect the Swedish banking system amid the ongoing eurozone debt crisis.

"Financial crises pose a serious threat to jobs, growth and welfare. The upcoming proposal will reduce this threat and make Sweden less vulnerable to risk-taking by the banks," Sweden's financial markets minister Peter Norman said in a statement.

According to Norman, Sweden has Europe's third-largest banking system relative to GDP, making the country more vulnerable to financial unrest.

As a result, the government has put forward a proposal with broad support in the Riksdag that calls for Sweden's four “systemically important” banks – Nordea, Swedbank, SEB, and Handelsbanken – to have a core Tier 1 capital equivalent of at least 10 percent of risk-weighted assets in 2013.

By 2015, the banks would have to boost the level to 12 percent of risk-weighted assets, double the 6 percent required by the recently adopted Basel III financial regulatory framework.

The government explained that the proposal was designed in part to “reduce the risk of tax-payers having to foot the bill for irresponsible risk-taking by the banks”.

“Given Sweden's vulnerable position with a large and concentrated banking sector - factors that are not taken into consideration in the Basel III framework - the Government, Riksbank and the Swedish Financial Supervisory Authority (Finansinspektionen) are of the view that resilience to crises must increase further," the government said.

Norman emphasized that the government will closely monitor how banks manage the new requirements to ensure that banks don't use the proposal as a pretext to burden households and businesses with higher lending costs.

“We're not against taking measures if the banks don't behave,” Norman said at a Friday press conference.

Finance minister Anders Borg added that the new requirements shouldn't pose a problem for the banks.

“The banks may need to withhold some of their dividend payments in the coming years. But that gives us a better and safer banking system,” he said.

Speaking with the TT news agency, representatives from both Swedbank and Handelsbanken said both said the new requirements wouldn't have any affect on home mortgage rates.

TT/The Local/dl (news@thelocal.se)

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Your comments about this article

12:59 November 25, 2011 by gorgepir
Seems a bit unfair to the top banks, puts them at a disadvantage compared to the others. I wonder what the 5th top bank is, they must be happy.
14:24 November 25, 2011 by vijinho
If the 'big-four' is as dominant as in the UK then the other smaller banks may actually get a chance to compete as a result of this.
13:00 November 28, 2011 by james_g
If I'm guessing right about the meaning of 'risk-weighted assets', the system would be a hell of a lot more safe and stable if banks were to be required to have capital of at least 100% of risk-weighted assets, not 6%, 10% or even 12%!!! This is what is at the bottom of the chaos - lending of unimaginable amounts of imaginary money!
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