Borg: Sweden Can't Rely on Liquidity From Fed, ECB, BoERebecca Christie and Jim Brunsden
Sweden needs to make sure European banking rules don’t make it overly dependent on liquidity from the European Central Bank, the Federal Reserve or the Bank of England, Swedish Finance Minister Anders Borg said today.
Sweden’s banking system is concentrated and particularly vulnerable to foreign-exchange risk, Borg said. This means any limits on Sweden’s ability to respond in a financial crisis could increase its dependence on foreign central banks who aren’t obligated to help, he told finance ministers in Brussels.
“We don’t have access to the FX markets in the same way that an ECB country has,” Borg said. “We cannot rely on the ECB to just flood our banks with money.”
Sweden has “great trust” that the foreign central banks would “help us out in a difficult position, but we are not a member of the ECB, so we cannot trust the same access to liquidity,” Borg said.
EU ministers are aiming to agree by June on a design for new rules on handling bank failures. Today’s discussions focussed on which creditors will be first in line to assume losses and are part of a broader debate on how to strengthen the European banking sector and prevent future crises.
Borg said the EU plans, as currently designed, would increase Sweden’s risk while limiting its ability to inject equity capital into struggling banks.
“The current proposal is actually saying that the way that we have set up our own banking resolution will not be allowed,” Borg said. “So I think this is actually a little bit of a problem for us.”