Bank Rescues Leave Sweden Questioning Point of Post-Crisis Union

Updated on
  • Swedish bank minister says Italian rescues aren’t encouraging
  • Nordea branch structure adds to urgency of bank union question

As Sweden weighs the pros and cons of joining Europe’s banking union, the Nordic country says Italy’s decision to involve taxpayers isn’t encouraging.

After months of deliberations, Italy said in June it will tap state coffers to pay for the wind-down of Banca Popolare di Vicenza SpA and Veneto Banca SpA. Italy is also using a provision in Europe’s new resolution rules to channel public money into Banca Monte dei Paschi di Siena SpA.

Further north, those examples appear to fly in the face of Europe’s declared intention never again to let taxpayers foot the bill for bank failures. They also feed Nordic fears that Europe’s banking union will combine healthy and unhealthy financial systems in one melting pot. In Sweden, banks face some of the region’s strictest requirements on passing losses on to unsecured bondholders.

Dealing With Failure

Per Bolund, Sweden’s financial markets minister, says his country won’t join Europe’s banking union if it means being saddled with others’ failures to deal with non-performing loans in a timely fashion.

“There is a concern in Sweden that if we are joining, we would have to take responsibility for banks and financial sectors in other countries where perhaps we feel that the actors haven’t taken the responsibility we have in Sweden,” Bolund said in a phone interview. “There are quite substantial risks with non-performing loans in central, and above all, southern Europe.”

Bolund said Spain’s application of Europe’s Bank Recovery and Resolution Directive was a step in the right direction, but still left Sweden with concerns about Italy’s taxpayer-funded approach. He also cautioned against interpreting Sweden’s review of bank-union membership as a first step toward ditching the krona.

“This doesn’t mean that Sweden is re-evaluating its position toward euro membership,” Bolund said. “That is not a discussion that is on the table in Sweden at the moment.”

So far, only euro members are in the bank union, which uses a common approach to resolution and a single supervisory framework (under which the European Central Bank directly monitors the largest banks and national authorities supervise the rest of the industry.) The third pillar, a unified deposit guarantee scheme, has yet to be adopted.

Swedish Review

Sweden’s government said this week it will review the merits of joining the banking union, in part to cope with risks stemming from Nordea Bank AB. The lender’s decision to turn its Nordic subsidiaries into branches has saddled Sweden with full regulatory responsibility for the region’s only global systemically important bank.

Nordea, which is considering moving its headquarters from Stockholm to either Helsinki or Copenhagen to look for a more hospitable regulatory environment, has said it would probably be better off inside the banking union. The bank said on Tuesday that its “ambition” is to make a decision “during summer.”

So far, Finland is the only Nordic member of Europe’s bank union. Denmark, like Sweden, is looking into membership. Sweden’s government plans to appoint a committee to review its options, with a final recommendation due in 2019. Bolund says joining would let Sweden share any potential risks stemming from Nordea with other bank-union members.

But he also says there need to be clear benefits to Swedish taxpayers, otherwise the country is “not interested” in joining. Bolund listed other hurdles, including uncertainty on how Europe will shape its deposit insurance scheme and country resolution funds.

“How will the banking union be able to cope with risks in the meantime: that is also a large question mark that will be evaluated,” he said.

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