June 7 (Bloomberg) -- Swedish central bank Deputy Governor Svante Oeberg said the central bank and the Financial Supervisory Authority should be merged to strengthen regulatory oversight in the largest Nordic economy.
“Such a merger would allow the authorities to act more forcefully to safeguard the stability of the financial system,” he said today in a speech published on the bank’s website. Oeberg also called for the role of the central bank governor to be strengthened.
Governor Stefan Ingves has raised rates six times since July, bringing the benchmark to 1.75 percent. He says the tightening is in part needed to curb the risk of housing-market imbalances fueled by credit growth. The Financial Supervisory Authority in October last year capped mortgage lending at 85 percent of a property’s value in an effort to counter the threat of a housing bubble. Both the Riksbank and the FSA have called for tighter bank capital rules in Sweden to curtail risk.
“A merger would allow us to avoid having two central banks which, under unfortunate circumstances, could be pulled in different directions,” Oeberg said. “Further advantages of merging the two authorities would be to ensure a high level of macroeconomic expertise and to focus more resources on the FSA’s tasks in the management of issues of this type.”
In neighboring Denmark, central bank Governor Nils Bernstein has also proposed merging with the financial regulator. Denmark’s central bank uses monetary policy to maintain a peg to the euro.
Oeberg also suggested that Swedish banks may need to reduce their dependence on foreign currency funding.
“If the fiscal problems in Greece lead to the writing off of the Greek national debt, this may lead to renewed difficulties for the Swedish banks in obtaining funding in foreign currency,” he said. “One alternative to retaining a good-sized currency reserve in the Riksbank would be for the banks to reduce their dependence on market funding in foreign currency.”
Sweden may need to enforce stricter liquidity rules than those set out by the Basel Committee on Banking Supervision and impose charges on market funding in foreign currency, he said.
Such measures “could possibly get the banks to reduce this, thereby reducing the need for a large foreign currency reserve and thus fund the costs to society of the foreign currency reserve,” Oeberg said. “However, such charges do not exist at present and the effects of any charges are not clear.”
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