Swedish banks face ‘heavy hand’: Borg

Sweden’s Finance Minister Anders Borg told Swedish banks on Tuesday that they will face tougher regulations year-by-year for the foreseeable future, as he addressed the Nordic Bank Summit in Stockholm.

Swedish banks face 'heavy hand': Borg

“We’re in a five- to ten-year period of reform. The authorities will be quite heavy-handed with the banks in order to lower Swedish households’ indebtedness,” he told assembled bankers and journalists.

“We will tighten the rules so the banks take fewer risks. That will of course mean lower profitability for the banks.”

Echoing rating agency Moody’s analysis on Monday, Borg said Swedish banks’ reliance on the health of foreign currency presented a risk.

“(Riksbank head) Stefan Ingves has mentioned the possibility having some kind of capital reserve demand,” Borg said.

When questioned, Borg refused to detail other areas for possible future regulations.

He instead referred to the ongoing work of the Financial Crisis Committee (Finanskriskommittén), headed by Thomas Franzén, which intends to deliver its assessment in May 2013.

Meanwhile, the Riksbank published its autumn risk survey last week after speaking with the Swedish banks.

“Some also say that the uncertainty over the design of the new regulations has caused the market to take a more wait-and-see stance, and that the coming regulations have already affected market pricing,” the summary read.

Ann Törnkvist

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Sweden’s Riksbank raises rates above zero for first time since 2014

Sweden's central bank has increased its key interest rate to 0.25 percent, marking the first time the rate has been above zero for nearly eight years.

Sweden's Riksbank raises rates above zero for first time since 2014

In a press release announcing the move, the bank said that it needed to take action to bring down the current high rate of inflation, which it predicts will average 5.5 percent in 2022, before sinking to 3.3 percent in 2023.

“Inflation has risen to the highest level since the 1990s and is going to stay high for a while. To prevent high inflation taking hold in price and wage developments, the directors have decided to raise interest rates from zero to 0.25 percent,” it said. 

The Riksbank, which is tasked by the government to keep inflation at around two percent, has been caught off-guard by the speed and duration of price rises.

Just a few months ago, in February, it said it expected inflation to be temporary, predicting there was no need to increase rates until 2024.

The last time the key inflation rate was above zero was in the autumn of 2014. 

In the press release, the bank warned that the rate would continue to increase further in the coming years. 

“The prognosis is that the interest rate will be increased in two to three further steps this year, and that it will reach a little under two percent at the end of the three-year prognosis period,” it said. 

According to the bank’s new future scenarios, its key interest rate will reach about 1.18 percent in a year, and 1.57 percent within two years. 

In a further tightening of Sweden’s monetary policy, the bank has also decided to reduce its bond purchases. 

“With this monetary policy we expect inflation rates to decline next year and from 2024 to be close to two percent,” the bank wrote. 

Annika Winsth, the chief economist of Nordea, one of Sweden’s largest banks, said the rate hike was “sensible”. 

“When you look at how inflation is right now and that the Riksbank needs to cool down the economy, it’s good that they’re taking action – the earlier the better. The risk if you wait is that you need to righten even more.” 

She said people in Sweden should be prepared for rates to rise even further. 

“You shouldn’t rule it out in the coming year. Then you’ll have a once percentage point increase which will go straight into fluctuating mortgage rates.”