Sweden Banks Should Cut Liquidity Risks, Riksbank Says

Sweden’s largest banks should continue to cut their structural liquidity risks and make sure they have enough capital to cope with future losses, the central bank said.

Authorities need to take more measures to prevent private debt from adding to record levels, including requiring banks to hold more capital and encouraging mortgage amortization, the Stockholm-based bank said today in a financial stability report.

“The fact that household indebtedness is high and rising poses significant risks to the stability of the financial system and the real economy,” the bank said. “The size and concentration of the Swedish banking sector, as well as the banks’ extensive use of short-term market funding, create vulnerabilities that may have a negative impact on financial stability.”

Sweden is next year imposing some of the world’s strictest reserve rules and its largest banks will have to hold at least 12 percent core Tier 1 capital of their risk-weighted assets by 2015. The country has taken numerous steps to try to cool its property market including a mortgage cap at 85 percent of property values and a tripling of the risk-weights banks must apply to their mortgages. Its financial watchdog this month said it will likely raise the mortgage risk weights to 25 percent next year.

The Riksbank also said Sweden’s largest banks -- Nordea Bank AB, Swedbank AB, SEB AB and Svenska Handelsbanken AB -- should further improve their public capital and liquidity reporting by detailing their leverage ratios and krona liquidity coverage ratio at least every quarter.

(Corrects risk weight in fourth paragraph.)
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