Sweden’s Banks Face Extra Fees to Cover Foreign Reserve Buffer

Sweden may force its banks to cover the cost of amassing currency reserves needed to guard against risks caused by the financial industry’s reliance on foreign borrowing, Finance Minister Anders Borg said.

Sweden “ought to make sure that the banks have to carry part of the costs for this, since they have almost half of their funding in foreign exchange,” Borg told reporters in Stockholm today. “It’s therefore reasonable that we put conditions in place for the Riksbank to deal with that situation.”

The central bank this week revealed it will build up its reserves and add the equivalent of 100 billion kroner ($15 billion). The money is needed to provide banks with extra liquidity should the crisis deepen, the central bank said. Borg, who already requires Sweden’s biggest banks to hold more reserve capital than their peers elsewhere, has argued more steps need to be taken to protect taxpayers from risks posed by the financial industry.

Though the central bank said Dec. 12 the increase in reserves is a temporary measure, Borg said today Sweden should consider having an extra buffer in the long term.

“We have such a big banking system and that banking system has such big funding in foreign exchange that this constitutes a stability risk,” Borg said. “There’s reason to increase currency reserves in Sweden in the long term.”

The krona sank as much as 0.6 percent against the euro and traded 0.4 percent lower at 8.7691 as of 12:31 p.m. in Stockholm. Versus the dollar, it lost 0.3 percent to 6.6978.

Nordea, SEB

Policy makers including Governor Stefan Ingves, who is also the chairman of the Basel Committee on Banking Supervision, have urged Sweden’s banks to rely less on short-term foreign borrowing after they needed emergency liquidity peaking at $30 billion in 2008 following the collapse of Lehman Brothers Holdings Inc.

Sweden’s financial industry, which is dominated by Nordea Bank AB (NDA), Svenska Handelsbanken AB (SHBA), SEB AB and Swedbank AB (SWEDA), comprises assets that are more than four times the size of the $500 billion economy.

Of the total securities issued by Swedish banks as of the end of October, including certificates and bonds, 78 percent were in foreign currencies, according to Statistics Sweden.

The biggest risk to Sweden’s financial stability now stems from Europe’s debt crisis, Mattias Persson, the Riksbank’s head of financial stability, said this week.

Jobless Outlook

The turmoil in the euro zone is also hurting Sweden’s macro economy. Swedish unemployment hit a two-year high in November, reaching a seasonally-adjusted 8.1 percent, Statistics Sweden said yesterday. Unemployment will probably continue to rise, Borg said today.

The Riksbank’s decision brings total foreign reserves to 310 billion kronor, including 45 billion kronor worth of gold, based on figures from Aug. 31, according to the Riksbank’s website. Of the total, 265 billion kronor are in bonds, of which 49 percent are in U.S. dollars and 36 percent in euros.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net