Banks must pay extra for loans from Swedish state

Sweden's recently approved financial sector support package calls for institutions which borrow money to pay a fee of 0.5 percent of the loans or more, according to details published on Wednesday.

Earlier this month Sweden said it would guarantee new borrowing by financial institutions of up to 1.5 trillion kronor ($194 billion) and set up a bail-out fund that would be used to deal with a solvency crisis at a bank should one arise in future.

None of the main Swedish banks have said they will utilize the facility, although Carnegie, a small investment bank, has been forced to take an emergency loan of up to 5 billion kronor from the Riksbank.

Nordea, the Nordic region’s biggest bank declined to comment on whether it would take up the government offer as did Handelsbanken.

SEB and Swedbank could not immediately be reached for a comment.

Details of the package published on Wednesday showed banks that want the government to back new loans will have to pay 0.5 percent for loans of up to one year. For longer-duration borrowing, the amount will be risk-weighted, based on historical prices in the credit default swap market.

Credit default swaps are a kind of insurance against the chance a company will default on debts.

The government said the guarantee will only be available for banks with core capital of more than 6 percent and a capital ratio of more than 9 percent will be able to get government guarantees for borrowing.

There will also be a limit on how much each financial institution can borrow and a cap on salaries for the top management of any firm receiving the state-sponsored support.

“The government is now taking measures to ease banks’ mid-term funding,” Financial Markets Minister Mats Odell said in a statement.

“This lays the groundwork for lowering banks’ borrowing costs, reducing interest rates and giving broader access to credit for companies and households.”

Under the new law, which comes into force on October 30th, the central bank will also assume broad powers to intervene in the operations of financial institutions should the necessity arise.

The government said it expected formal approval of the plan from the European Commission on Wednesday.