Borg Seeks to Raise Swedish Bank Capital Requirements

Finance Minister Anders Borg will seek even steeper capital requirements for Sweden’s major banks as he moves to shield the Nordic region’s largest economy from future financial industry losses.

Buffers may be raised above the 12 percent minimum target that applies from 2015 and the government plans to outline new rules in a road map this spring, Borg said in Stockholm today. The government will hold talks with the central bank and the financial regulator on the road map, he said.

“The direction ought to be to gradually tighten the requirements -- then we’ll have to see to what extent, scope and to which level,” Borg said today. “Compared with what we’ve said and compared to where we’re at, there’s probably reason to carefully move in a tightening direction.”

Policy makers have grown increasingly concerned over a build-up in debt. As Sweden’s house prices have soared, consumers have amassed record debt burdens. Households owe their creditors more than 170 percent of disposable incomes.

Sweden already has implemented some of Europe’s strictest rules for its biggest banks, which have total assets equivalent to four times the size of the economy. The 12 percent requirement that applies from 2015, which Nordea Bank AB, Svenska Handelsbanken AB, SEB AB and Swedbank AB all already exceed, includes 4.5 percent in common equity Tier 1 capital, a 2.5 percent capital conservation buffer and a 5 percent systemic risk buffer.

Counter Cyclical

In addition, the banks face a counter-cyclical buffer that will be between zero and 2.5 percent, Martin Andersson, head of the financial regulator, said in an interview on Nov. 14. The banks must also apply risk-weights of 15 percent on their mortgage assets, a level that the FSA on Nov. 14 proposed may be increased to 25 percent later this year.

Handelsbanken and Swedbank had core Tier 1 capital ratios under Basel II of 19.3 percent and 18.8 percent, respectively, at the end of September -- the highest among all major European banks. Nordea was at 14.4 percent and SEB at 17.4 percent.

“These agreements we’ve made in the EU relating to the banking crisis speak in favor of us raising capital requirements further,” Borg said. “A country with the structure that Sweden has needs to have slightly higher buffers to avoid being drawn into for example these bail-in processes.”

(Corrects requirement buffers in fifth paragraph.)
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