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Swedish Bank Watchdog Rejects Borg Talk of Tougher Risk Weights

Sweden’s financial regulator rejected government and central bank calls to raise risk weights on mortgage assets above the 15 percent already agreed on in the latest clash between policy makers and the watchdog.

Finance Minister Anders Borg warned this week that 15 percent may not be enough and signaled he supports the central bank’s recommendation that Sweden consider raising risk weights to 20 percent. The country’s biggest banks already are subject to some of Europe’s highest core Tier 1 capital requirements and will need to hold at least 12 percent in reserves against risk-weighted assets from 2015.

The Financial Supervisory Authority agreed May 21 to triple the risk-weight requirement for Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB. Earlier the same day Borg had told Sweden’s banks to expect further steps over the next five to 10 years, arguing the measures are needed to protect taxpayers. Sweden’s four biggest banks have assets equivalent to four times the $500 billion economy.

“We’ve just this week launched the risk-weight floor so let’s now see how it works before we start thinking about something else,” Martin Andersson, head of Sweden’s Financial Supervisory Authority, told reporters in Stockholm.

Sweden’s banks had enjoyed some of Europe’s lowest mortgage risk weights -- a measure that determines how much capital banks must hold to protect against housing loan losses. The FSA first unveiled its 15 percent proposal in November. That followed a 2010 decision to cap loans at 85 percent of a home’s value.

‘Pretty Happy’

“We’re pretty happy about what we’ve done so far,” Andersson said. “We’re prepared to do more if we think there are reasons for that, but at the moment we don’t see that because then we’d have done more. It’s completely OK that we have different opinions on these issues” from the government and central bank, he said.

The Riksbank, where Governor Stefan Ingves is also the head of the Basel Committee on Banking Supervision, has argued it needs to play a bigger role in financial oversight. The watchdog counters that such a move would create too fragmented a regulatory framework, a view Sweden’s debt office said this week it backed.

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