Sweden May Delay Countercyclical Buffers Till 2015, Frisell Says

Sweden probably won’t require banks to add countercyclical buffers to their capital reserves until after 2014 to help lenders adjust to a slowing economy, the chief economist of the country’s financial regulator said.

“As it looks now, it looks pretty gloomy so it’s hard to see a big buffer would be implemented already from 2014,” Lars Frisell, who’s also a member of the Basel Committee for Banking Supervision, said in a Dec. 1 interview in Stockholm.

Sweden, whose biggest banks have combined assets more than four times the size of the largest Nordic economy, wants the lenders to target tougher capital requirements earlier than the Basel Committee has set. The government argues the more rigorous standards are needed to ensure taxpayers are protected from the risk of losses.

Sweden’s four biggest lenders, including the region’s biggest, Nordea Bank AB, must target common equity Tier 1 capital of at least 10 percent from January 2013 and 12 percent in 2015, the government said on Nov. 25. Basel sets a 7 percent target, to be met by 2019.

Sweden indicated last month it might be ready to implement the countercyclical measures, aimed at tightening credit growth during economic booms, already by 2013. Such a buffer, which could rise to as high as 2.5 percent, would be decided by a committee and implemented according to domestic market share and through advance notice to banks.

Scandinavian Plan

Frisell said that the plan is to work with Norway, Finland and Denmark on a similar model.

Nordea, Svenska Handelsbanken AB, Swedbank AB and SEB AB are Sweden’s four largest banks. International regulators want lenders to adopt countercyclical buffers to curb lending booms, strengthen balance sheets and counter potential bubbles.

Chintan Joshi, an analyst at Nomura International Plc in London, said Riksbank analyses going back to 2000 on countercyclical buffers for individual banks shows the lenders would have been subject to the top ratios.

“The full charge of 2.5 percent would have been applied at certain points so the calculation has teeth,” Joshi said in a note on Nov. 29.

Sweden’s economy will stagnate in 2012 after expanding 4.5 percent this year as Europe’s debt crisis weighs on export demand, Nordea forecast yesterday. Sweden’s central bank will cut its benchmark interest rate to 0.75 percent by the second half of next year from the current 2 percent, it said.

The Riksbank warned on Nov. 29 that Sweden’s lenders aren’t immune to contagion stemming from Europe’s debt crisis and remain vulnerable to liquidity risks.

The major Swedish banks “should continue to reduce their structural liquidity risk, that is the difference between the maturities of assets and liabilities, and approach the minimum level of 100 percent in the Basel Committee’s structural liquidity measure, the net stable funding ratio.”

According to Frisell, “it’s clear that NSFR is tougher for our big banks to meet so they will need more time to meet the 100 percent,” he said. “We don’t want to destroy the market. In due time NSFR, or a version of it, will come into effect.”

To contact the reporters on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net; Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Jonas Bergman at jbergman@bloomberg.net

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