Nordea Mergers Prompt Finland to Seek Tougher EU Mega-Bank Rules

  • FSA in Helsinki says Nordea model shouldn’t be copied in EU
  • Finland looking into Danske’s plans to merge local branches

Finland’s financial regulator wants the European Union to tighten rules to give local authorities more power over individual bank branches that in some cases are bigger than lenders domiciled in a country.

The Financial Supervisory Authority in Helsinki says the need for tougher rules follows Nordea Bank AB’s decision to turn its subsidiaries into branches through a series of mergers.

The move means that, as of this year, the Nordic region’s only global systemically important bank now has its entire balance sheet supervised from Sweden, even though combined operations outside the country make up more than half its business. Nordea’s branch in Finland accounts for about one-third of the country’s banking market.

“The problem is that existing EU banking regulation is not written for this kind of situation,” Jyri Helenius, the deputy head of the FSA in Helsinki, said in an interview on Tuesday.

Resolution Fees

Nordea’s approach, which the bank says helps improve internal governance at a time when risk management is increasingly in focus, shouldn’t become a model for other banks across the EU given the current regulatory framework, Helenius said.

European regulators are already looking into the framework that currently exists. In a March report, the European Banking Authority said local supervisors often aren’t given all the information they need on resolution planning of lenders, including branches, operating in their backyards.

“This shortcoming impacts the credibility and effectiveness of the proposed recovery measures and of the overall recoverability of the group,” the London-based EBA said in a March 2 consultation paper.

Nordea’s move has already brought with it some regulatory ramifications that the bank is now fighting. Sweden plans to raise the fee lenders pay into the country’s resolution reserve. Because Nordea’s contribution will now be based on its entire Nordic balance sheet, its payment will be much bigger than it would have been. (Nordea estimates its contributions will make up almost half the reserve, which is to be part of the state budget.)

Nordea HQ

Nordea’s management has responded by warning it will move its headquarters from Stockholm to another Nordic city, a threat it says is “dead serious” if Sweden’s government doesn’t reconsider.

Asked whether Finland would be willing to have Nordea move its headquarters to Helsinki, Helenius said the regulator would be ready to “talk about it.” He declined to say whether the FSA had already had preliminary talks with Nordea.

Finland is the only euro member in the Nordic region. Banks that operate in the single currency bloc would need to contribute to the Single Resolution Fund, which is being built up through 2023 and is intended to reach at least 1 percent of covered deposits of all the region’s banks by the end of that year. By comparison, Sweden had targeted 3 percent of covered deposits and now says the level could be even higher.

Danske Bank

As Finland deals with the aftermath of Nordea’s restructuring, Danske Bank A/S has indicated it is considering a similar move. In connection with the lender’s full-year results, Denmark’s biggest bank said it was looking into merging its activities in Finland into a single branch, as part of efforts to “simplify the organization and improve efficiency.”

“If Danske were to become a branch here in Finland, it would be something like 40 to 50 percent of the Finnish banking markets that will then be coming through these branches,” Helenius said. “Some Baltic countries may be similar, but otherwise, it’s a very strange structure of the banking sector.”

In Finland, the country’s patent and registry office gives the final go-ahead in such cases, and the FSA can’t block any future mergers to create more mega branches. Helenius says that the regulator would prefer a different process giving the FSA more say in such structures.

— With assistance by Frances Schwartzkopff

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