Banks may have too much freedom to determine appropriate levels of risk weighted capital under international banking rules, said Stefan Ingves, governor of Sweden’s central bank.
“When it comes to the difficult issue of risk weight, we’ve been looking into that and have concluded there may be too many degrees of freedom, in that banks can choose for themselves,” the Riksbank governor, who is also the chairman of the Basel Committee on Banking Supervision, said today during a panel debate in Chicago.
That “points in the direction toward floors, so we would not at the end of the day have unlimited degrees of freedom,” he said.
Ingves, one of the main architects who helped rebuild Sweden’s banking system after its 1990s crisis, has been a vocal supporter of stricter bank capital requirements. Sweden’s four biggest banks must hold at least 10 percent core Tier 1 capital relative to their risk-weighted assets this year, with the minimum requirement rising to 12 percent in 2015. The Basel Committee on Banking Supervision has set a 7 percent minimum by 2019.
Sweden’s biggest banks have combined assets that are more than four times the size of the $500 billion economy. The government has argued stricter rules are needed to shield taxpayers from financial industry losses.
Ingves voted last month with the majority on his six-member board to keep the central bank’s main lending rate at 1 percent. He has argued against easing to prevent record-high Swedish house prices from spiraling out of control. Household debt in the largest Nordic economy has swelled to an all-time high of 174 percent of disposable incomes this year, from about 90 percent in the 1990s, the central bank estimates.