Nordea Plays Down Regulator Anxiety Across Nordics After Mergers

  • Bank’s CRO says Nordea will ensure ‘level playing field’
  • Assurances follow local regulatory warnings of branch risks

Nordea Bank AB is trying to allay concerns among regulators that measures designed to turn its subsidiaries into branches risk undermining financial stability across the Nordic region.

The Stockholm-based bank, which said on Monday it completed the necessary cross-border mergers to enable its new branch structure, is responding to regulator anxiety voiced in Denmark and Finland. The move gives watchdogs in these countries less power over branches that are systemically important in their own right.

But Nordea, which is the only Nordic bank that is on the global list of systemically important financial institutions, says it’s ready to do what it can to ensure a “level playing field” that respects each country’s regulatory interests.

“I think it’s safe to say that our interests are completely aligned,” Nordea Chief Risk Officer Julie Galbo said by phone on Monday. “Nordea has an interest in maintaining financial stability in the markets where we operate, and also in maintaining a level playing field in the markets in which we operate.”

Mega Branches

Both the Danish and Finnish financial watchdogs have pointed out that Nordea’s new legal structure creates a situation in which local regulators risk losing control of institutions that have the potential to destabilize the domestic economies they do business in.

Nordea says “it will continue to cooperate closely with relevant national authorities and commits to follow up on national prudential measures in order to assure the financial stability in our home markets.” According to Galbo, that work will mainly be conducted through dialog with local regulators, which have already signed memorandums of understanding.

“The key to solving the Finnish, Danish and Norwegian concerns is cooperation between supervisors, and my understanding is that they are committed to doing that, and we will of course cooperate with all of them,” said Galbo.

Local Fears

Anneli Tuominen, director general of the FSA in Helsinki, said in November that a branch structure wasn’t appropriate for a lender like Nordea, which has a market share in Finland of more than 30 percent. But Finland had little chance of successfully opposing the change, she said.

In Norway, the FSA said it couldn’t impose any conditions on Nordea that would adequately counter the risks associated with its new branch structure. But Norway’s regulator said it was “doubtful” that European Union rules would allow it to block Nordea’s application.

Denmark’s FSA head, Jesper Berg, said in October that Nordea’s “case of branchification” has drawn EU attention because of its potential ramifications. The bank’s new structure, and the loss of local regulatory clout, may trigger an EU “review of existing rules to ensure that branches aren’t too large,” he said then. (Denmark’s FSA on Tuesday named Nordea’s mortgage arm, Nordea Kredit, a systemically important financial institution for the country.)

But despite such concerns, Nordic governments agreed to the mergers last month. Nordea, which has been fined for breaching anti-money laundering requirements and criticized for its use of tax havens, says the new structure will reduce complexity and improve risk management.

“We used to have to go through several layers to execute decisions,” Galbo said. “This will give us the advantages of a simpler governance structure and also enable us to simplify our operations by having the same systems for all markets. That is good for business purposes and management risk control purposes.”

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