Banks in $43 Billion Capital Dispute Slam Swedish Government

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Sweden’s banks say their government is underestimating the damage that a new set of capital rules will do to the economy and public finances.

The Swedish Bankers’ Association says a plan to curb the use of internal risk models to determine capital levels will cost as much as 365 billion kronor ($43 billion) in additional buffer requirements. Citing a report by Oliver Wyman that it commissioned, the group says that will force banks to raise interest rates and limit credit growth. Overall, the proposals could reduce gross domestic product by 1.8 to 4.4 percent, the group says.

“The signals we are getting are that the Swedish government isn’t active regarding this issue,” Hans Lindberg, the association’s head, told Bloomberg on Thursday. “This is an issue for the entire economy and also for tax revenue in the longer term. If I were finance minister, I would deal with this issue. It’s something that has large consequences for the whole economy.”

Back Door

Nordea Bank AB, Svenska Handelsbanken AB, Swedbank AB and SEB AB are already subject to some of the toughest capital requirements in the world after Sweden went further than other regulators in trying to protect taxpayers. But the Basel Committee on Banking Supervision wants to impose standardized limits on risk weights to stop banks boosting their capital ratios through the back door.

The Stockholm-based Financial Supervisory Authority doesn’t back a standardized approach, but wants tougher requirements for internal models. The regulator also questioned the estimated capital cost put forward by bankers and said that tougher rules are unlikely to hurt the industry.

“I’m skeptical of those calculations,” Martin Noreus, deputy director general at the FSA, said in an interview. “It’s been shown that well-capitalized banks can give more credits.”

The government says it’s aware of the needs of Sweden’s banks and will represent the industry in talks with Basel and the EU.

“Our standpoint is that respect must be shown to what applies to Swedish banks,” said Anna Soederstroem, a spokeswoman for Swedish Financial Markets Minister Per Bolund. “The government’s view is that capital requirements should take into account the risks in the banks’ operations.”

The Basel committee holds three crucial meetings in the next two weeks as it works toward wrapping up the post-crisis capital framework by the end of the year. As banks warn that proposed changes on assessing risk would trigger a surge in capital requirements, policy makers across the globe are starting to listen.

For more on banks winning over policy makers, click here.

Defending Sweden

But Lindberg said the government hasn’t spent enough time trying to comprehend the scope of the threat to Sweden’s banking industry.

“I don’t think the government has understood the importance of this,” he said.

Lindberg said part of the problem is that it’s not entirely clear who is representing Swedish interests in global talks. The question follows periods of disagreement between FSA Director-General Erik Thedeen and Riksbank Governor Stefan Ingves, who is also the chairman of the Basel Committee.

“If this doesn’t turn out well, who will be held accountable?” Lindberg asked. “The government, Stefan Ingves, Erik Thedeen, who? Who decided, who was defending Swedish interests, who is doing it now?”

Bankers in Sweden are also bracing for a potential new bank payroll tax, with the conclusions of a government review due to be published in November. If it’s set at 15 percent, that means that 3,700 to 7,200 finance jobs could disappear, according to a report by Copenhagen Economics commissioned by the association. The industry repeated concerns raised earlier by Nordea Chairman Bjoern Wahlroos that such a tax might force banks to close branches and move operations abroad.

“In the Baltics, wage costs are about a third of Sweden’s while the education level is very high,” Lindberg said. “That means a potential to move jobs there, not only simple jobs but also very advanced jobs.”