Riksbank Governor Stefan Ingves, who is also the head of the Basel Committee on Banking Supervision, said new regulations will narrow the difference in the risk-weights banks apply to their mortgages across markets.
“We’re moving toward a world where there will be further limitations and some kind of standardization of risk-weights,” Ingves said today to reporters in Haernoesand, Sweden.
The Basel Committee is reviewing the risk-weights applied to assets in banks’ trading books, which determine how much capital they must set aside to cover the risk of losses on those assets. It will soon publish a report on risk-weights in banking books and “if you look at what we have published about trading books it is clear that the conclusion is that the spread is a bit too big and we have a discussion ahead of us that must focus on how to limit that spread,” Ingves said.
Sweden’s regulator on May 21 tripled the risk-weights banks need to apply to mortgages to 15 percent to limit losses from any potential housing crisis and try to stem growth in household indebtedness. The banks previously had risk-weights as low as 5 percent, among the lowest in Europe. Norway has proposed raising mortgage risk-weights to 35 percent, prompting calls from Nordic banks that rules need to be harmonized across the region.
Swedish Finance Minister Anders Borg and the country’s central bank have warned against the rising consumer debt level, which has grown to 174 percent of disposable incomes and is estimated by the Riksbank to reach 177 percent in early 2015. While household borrowing growth has slowed in Sweden since a cap on mortgages was introduced in 2010, mortgage still grew an 4.6 percent in April from a year earlier.
When originally announcing the proposal to raise mortgage risk-weights to 15 percent on Nov. 26 last year, the Swedish FSA said the new rule would mean the largest banks would need to set aside an additional 20 billion kronor ($3.1 billion), including 7.2 billion kronor for Swedbank AB and 5.5 billion kronor for Svenska Handelsbanken AB, Sweden’s two largest mortgage lenders.