Finance Minister Anders Borg said the government will next take steps to force Swedish lenders to cut their reliance on foreign currency funding after it presents its plans for higher capital requirements.
While the priority now is to establish the “road map” for capital requirements, the government will “eventually have to return to the liquidity requirements and the banks must expect that the order we have today with market financing via currencies won’t remain,” Borg told reporters at parliament in Stockholm today.
“It’s not a situation that will be acceptable in the future,” said Borg, who faces an election in September. “We will eventually regulate that and then the banks will be forced to have another financing model.”
Sweden’s banks are already subjected to some of the strictest capital rules in the world. Riksbank Governor Stefan Ingves last week called for a “quantitative requirement” for krona liquidity buffers, saying it wasn’t “reasonable” for the central bank to cover for the currency risk taken by lenders.
Policy makers are working on a macro-prudential framework to protect Sweden as the banking industry has grown to four times the size of the economy. To boost resilience against short-term liquidity crunches, Sweden has enforced a liquidity coverage ratio, or LCR, two years ahead of a 2015 deadline set by the Basel Committee on Banking Supervision. While requiring banks to match cash-flow in euros and dollars, it stops short of doing so in kronor.
“We have a few other difficulties with the Swedish banking system, one of which is that half of the banking system is financed in foreign currency,” Borg said. “That makes us vulnerable and more vulnerable than other countries and it is a vulnerability that is increased by the fact that we have big international companies and high household indebtedness.”
The LCR rules stipulate that Swedish banks must have a large enough buffer of highly liquid assets to cover cash outflows for 30 days in a stressed scenario.
While Sweden’s four largest banks meet the requirement, only Swedbank AB (SWEDA) publishes how much it’s invested in kronor. Ingves, who’s also chairman of the Basel committee, is also urging the other three, Nordea Bank AB (NDA), SEB AB and Svenska Handelsbanken AB (SHBA), to follow suit.
To contact the reporter on this story: Niklas Magnusson in Stockholm at firstname.lastname@example.org
To contact the editors responsible for this story: Jonas Bergman at email@example.com Alastair Reed