Sweden’s Banks Face Tougher Standards to Counter Currency RisksJohan Carlstrom and Niklas Magnusson
Sweden’s banks, already Europe’s best capitalized, face even tougher rules as Finance Minister Anders Borg says reining in household borrowing is key to preventing the krona’s appreciation.
The krona “is a concern” and “it’s important that we monitor its development,” Borg said today in the city of Norrkoeping, Sweden. His government now targets policies that make monetary tightening unnecessary and take pressure off the exchange rate, he said.
“It’s key that we dare to have a slightly tougher discussion surrounding our banks,” Borg said. “The other side of the coin is that if we have indebtedness that is too high and some financial stability risks, well, then the Riksbank becomes more careful and the interest rate a bit too high and the krona a bit too strong.”
Borg has imposed some of the world’s strictest capital requirements on Swedish banks, arguing the measures are needed to protect taxpayers. The nation is grappling with an overheated housing market as private debt loads approach 180 percent of disposable incomes. Capping risks through bank regulation will ease pressure on the krona and help exporters, he said today.
The krona yesterday erased its gains against the euro following Borg’s comments. Against the dollar, it reversed an advance as high as 0.3 percent to rise 0.1 percent after Borg spoke.
“If we want to make sure that the Swedish export industry does well, we must dare to be a bit tougher toward the banks,” Borg said.
Sweden’s central bank kept the repo rate unchanged at 1 percent between December 2012 and December last year, citing the risk that a cut would lead to an acceleration in household borrowing. That prompted exporters such as Sandvik AB and Svenska Cellulosa AB to blame lost competitiveness on monetary policy. The Riksbank then lowered the repo rate to 0.75 percent from 1 percent on Dec. 17, after a strong currency undermined its inflation goal.