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Sweden banking crisis law closer to completion

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17:31 CET+01:00
A new Swedish law regulating how and when the state would act to take over a bank in crisis is closer to be coming a reality.

Minister for Financial Markets Mats Odell estimates the Riksdag will make a decision on the law sometime next year.

“There’s no connection to the current troubles with American and British banks,” said Odell.

The law has been under discussion for several years.

“We’ve come pretty far but talks continue on a number of issues. It’s an extensive law. There is much that needs to be taken into account,” he said.

The proposal has its roots in the Swedish banking crisis of the early 1990s when current Riksbank head Stefan Ingves was forced to negotiate bailouts in the absence of any formal legal framework.

At the time a decision was taken that a set of rules should be developed and a committee on banking law put forward a proposal to the former Social Democratic-controlled government in 2000.

”Its been lying around gathering dust over a few social democratic governments. Now we’re starting to see the end of the process,” said Odell.

The new law, refered to as ”the public administration of banks in crisis” will, among other things, regulate under which circumstances the state can take over a bank.

The law proposes to establish a decision making body with the authority to decide whether to impose public administration of banks at times when the owners aren’t able to keep problems at bay.

Certain criteria must be met in order to go forward with any such action.

“What we want to achieve are measures that impose the smallest possible economic cost in thwarting extremely serious disturbances to the financial system which can in turn cause even greater costs to the national economy,” said Odell.

He compared the new law to fire insurance.

“It’s important to have things clarified before you detect something is burning,” he said.

“But Swedish banks are amongst those least affected by what is happening at the moment. I believe that is because banks learned a tough lesson in the 1990s.”

Later in the year the proposal will be sent out for a 90-day consideration period and next year Odell believes the proposal will be put before the Riksdag.

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