Swedbank CEO demands amortization law
Published: 24 Jul 12 15:00 CET | Print version
Online: http://www.thelocal.se/42210/20120724/
Swedbank CEO Michael Wolf has proposed that Sweden adopts a law requiring mortgage amortization to ward off the threat of spiralling household debt to the Swedish economy, according to a report in the Dagens Industri (DI) daily.
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In a letter to the department of finance, the Swedbank CEO has argued that the existing voluntary commitment, which requires amortization on mortgages in excess of 75 percent of the property value, does not work particularly well.
The bank has thus called for legislation to force banks to act to encourage especially highly-leveraged customers to pay off their loans.
"We thus believe that the way towards a more robust system is via legislation as opposed to self-regulation," Backteman explained.
In his letter to the finance department, the Swedbank CEO has however stopped short of stipulating an exact level at which amortization would be legally required.
Wolf argued that if nothing is done and Swedish property prices declined by as little as 10 percent then Swedish banks would run into difficulties financing their stocks of mortgage loans.
This would in turn increase the cost of bank borrowing and thus threaten the broader Swedish economy, Wolf argued.
The bank pointed out that Swedish banking culture differs somewhat from the remainder of Europe.
"A normal European mortgage is paid off in 20-25 years. This is a structure we have previously had in Sweden and which we must now return to," Backteman told Dagens Industri.
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I am retired. I paid my property off so my savings income goes farther as I have no mortgage to pay. One can't trust the government to sent you Social Security, what if they fail? In 2007, when it was obvious we were in recession, I worked quickly to become debt free I hope for your sake that Socialism does not equate to 'broke'.
There must be people in Sweden who follow this practice of being 'solvent, cash only' also, or not?
If the house price goes down, he's definitely screwed...
Are a lot of Swedes facing high levels of debt? Yes. Will banks run into problems if the laws are not changed and the economy tanks? Yes!
At the end of the day Banks are professionals that have much more information and the ability to process it in terms of managing risks. On the other hand, consumers, well a fair share at least, will take advantage of the credit markets in the short term regardless if it harms them in the long term.
Banks must stop thinking they can take undue risk and then depend on government to bail them out when they overextend via either legislation or outright bailouts. Banks must be small enough to allowed to fail just as any other company or individual would fail and become insolvent under a similar set of circumstances.
Let us hope the politicians in Sweden can take a careful look at the trouble banks got themselves in here a while bank and all the problems the banks in other parts of the world are currently causing.
If you dont have your own property you still have to pay rent.
I would rather be paying interest only on my own property and taking the capital gain than paying off a property for someone else (rent).
Problem is, now Sweden is caught between a rock and a hard place. Too late when most of your population are mortgaged up to the hilt, and the economy cannot stand a big drop in house prices that such a change in policy would dictate. Even if only for new mortgagees, this law would effectively force house prices down as the new "maximum" amount people could borrow is effectively reduced .. The only way to fix it is with very very careful gradual increases in amortization requirements.
And another thing - the so called "Swedish Fix" to the banking crisis heralded by so many over the past 4 years is just b*ll*cks - house prices have been allowed to reinflate partly through the erosion of amortization requirements.