Norway Backs Sweden in Seeking Toughest Bank Capital Rules
A bundle of Norwegian Krone notes sit on display at a bank in Oslo, in this file photo. Photographer: Heidi Wideroe/Bloomberg
March 11 (Bloomberg) -- Simon Maughan, co-head of European equities at MF Global, talks about the capital requirements of Spanish lenders after the Bank of Spain said 12 banks need as much as 15.2 billion euros ($21 billion) to meet minimum capital rules. He speaks with Mark Barton on Bloomberg Television's "On The Move." (Source: Bloomberg)
Norway is signaling it may follow Sweden’s target of imposing some of the world’s toughest capital requirements on lenders as policy makers in Scandinavia embrace post-crisis measures that banks warn will undermine competition.
“There are good reasons for the level suggested by the Swedish authorities,” Bjoern Skogstad Aamo, the head of Norway’s Financial Supervisory Authority, said in an interview in Oslo yesterday. “I don’t have very different views.”
Sweden’s regulator said this week it wants banks to target capital ratios as high as 12 percent, and will probably require systemically important lenders to aim for 15 percent by 2013. The proposals have prompted the biggest Nordic lender, Nordea Bank AB (NDA), to lash out at policy makers arguing stricter rules will distort competition and hurt the economy. Regulators in Norway, home to the Nordic region’s second-biggest lender by market value DnB NOR ASA, say tighter rules are needed to stem the risk of a housing bubble.
“We are in favor of consultation between the Nordic countries on the speed of the new capital requirements,” Skogstad Aamo said. “The most important banks have to expect higher capital requirements than others.”
The Basel Committee for Banking Supervision set standards in December that will require lenders to have a minimum core Tier 1 capital ratio, a measure of financial strength, of 7 percent plus a counter-cyclical buffer of 2.5 percentage points. Banks have until 2019 to phase in the requirements. Basel is also working on a model that will require systemically important banks to have even higher buffers.
‘Far More Vulnerable’
“If you’re sitting outside the eurozone, in Sweden, in Switzerland, in the U.K., in a relatively small currency with big banks, you are far more vulnerable than if you are sitting in the eurozone,” Simon Maughan, co-head of European equities at MF Global Holdings Ltd., said in an interview with Bloomberg Television’s Mark Barton today. “There will be a two-tier regulatory system, and investors have to take that into consideration.”
Shares in DnB NOR slumped as much as 1.2 percent today and were trading 0.5 percent lower at 85.55 kroner at 11:16 a.m. in Oslo.
Policy makers in Norway, like their Swedish counterparts, are trying to stem the risk of a housing bubble after near record-low interest rates fueled borrowing and sent property prices above a pre-crisis peak.
Rate Rises
The Oslo-based central bank has signaled it will start raising the benchmark interest rate from 2 percent in the middle of the year as it struggles to balance the impact of monetary tightening on the krone against credit risks. Low borrowing costs and Europe’s smallest unemployment rate have spurred asset-price growth in the world’s second-richest country per capita. House prices surged an annual 9.2 percent in February, after rising 7.6 percent the previous month, according to the Association of Norwegian Real Estate Agents.
While Nordea Chief Executive Officer Christian Clausen last month called plans to impose stricter rules in Sweden “a bit strange” and “not realistic,” the head of DnB NOR ASA (DNBNOR) says he’s open to discussion.
“We are willing to discuss what is proper regulation, what is the right level of taxation and what is the level of buffers and capital you should go for, but the most important thing is to coordinate,” DnB NOR CEO Rune Bjerke said in a March 9 interview.
Investors Take Note
Investors should listen closely to talks on differing capital requirements across Europe when deciding which bank stocks to hold, Maughan said.
“We need to look at the eurozone and say: where are the stronger economies? They’re in France, they’re in Germany. The banks there are going to have lower capital requirements than they are in Sweden, the U.K. and Switzerland. You should be buying banks in these countries,” he said.
DnB NOR will participate in stress tests being conducted across Europe to restore investor confidence, Skogstad Aamo said yesterday. The bank has the “right” to be compared with international rivals in the tests, he said in a statement.
A second round of stress tests in Europe started on March 4, with banks being assessed on their liquidity buffers as well as capital requirements. The European Banking Authority is due to publish the macroeconomic scenarios that the tests will be based on as well as the names of the banks to be tested a week from today. Results will be made public in June. DnB NOR had a core Tier 1 capital ratio of 10.1 percent, according to its fourth-quarter report.
Bank Debt
“The Norwegian market is an area for competition between Nordic banks, so we think it is of great importance to have fair competition between these,” Skogstad Aamo said. “From the starting point the Norwegian requirements are somewhat stricter than the others, so harmonization should not pose specific problems to us.”
Norwegian banks reduced their foreign debt by 129 billion kroner ($22.8 billion) in 2010 to 1.2 trillion kroner at the end of the year. At the same time mortgage lenders increased their bond debt to 675 billion kroner from 526 billion kroner, Statistics Norway said today.
In Sweden, home to four of the Nordic region’s six biggest lenders, the bankers’ association says it will fight rules that undermine competitiveness. Policy makers say they want to emulate initiatives in Switzerland to impose stricter standards.
Swiss Standards
The Swiss government has proposed laws that would require its biggest banks UBS AG (UBSN) and Credit Suisse Group AG (CSGN) to hold capital equal to 19 percent of risk-weighted assets.
Norway’s banks may also face a financial stability fee and taxes on bank profits and pay if proposals by the country’s Financial Crisis Commission are adopted by the Finance Ministry. The FSA wants banks to achieve capital and liquidity goals before looking into new taxes, Skogstad Aamo said.
“That proposal that will increase taxation should rather wait until we have strengthened capital and liquidity,” he said.
To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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