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Bankers in Scandinavia Say Basel Rules Hit Them Unduly Hard

Updated on
  • Swedish regulator says it won’t mechanically raise requirement
  • Danish banking lobby says new rules ‘unfortunate’ for industry

The financial industries of Sweden and Denmark were quick to criticize the Basel Committee on Banking Supervision’s completed framework on Thursday, arguing it will hit Scandinavian lenders too hard.

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“The Basel standards will, if they are fully implemented in the EU and Sweden, have large negative effects for Swedish banks, their clients and the Swedish economy,” Hans Lindberg, the head of the Swedish Bankers’ Association, said in a statement on Thursday.

In Denmark, the banking lobby said it is “fundamentally opposed” to the introduction of a capital floor, and pledged to work to ensure European authorities are aware of the “very unfortunate side effects of such regulations.”

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Despite the warnings, Nordic bank stocks opened higher on Friday, with Danske Bank A/S among the best performers in the Bloomberg index of European financial firms. Share moves indicated investors in the financial industries of Sweden and Denmark viewed the Basel package as a softer version of earlier proposals.

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Svenska Handelsbanken AB, Nordea Bank AB, Swedbank AB and SEB AB also all traded higher.

The Basel Committee on Thursday ended a year-long deadlock, completing a capital framework intended as a response to the 2008 financial crisis. The agreement includes new curbs on how banks estimate the risk of mortgages, loans and other assets on their books in an effort to improve the transparency and health of lenders’ balance sheets, the committee said.

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The new framework restricts the options lenders have with a limit on how low banks can drive their capital requirements by measuring asset risk with their own statistical models. Top European Union officials first opposed the inclusion of this floor, then pushed for a level of 70 percent of the result yielded by using a standard formula set by regulators. The U.S. sought an 80 percent floor, later coming down to 75 percent. In the end, negotiators settled on 72.5 percent.

In Scandinavia, lenders have typically relied on their own internal models to determine how risky their assets are and how much capital they need to hold. Sweden’s financial regulator said it won’t automatically start raising banks’ capital standards based on the Basel Committee’s completed framework.

Denmark said the new rules may add “substantially” to banks’ existing capital requirements. Business Minister Brian Mikkelsen said he’ll work to ensure the rules don’t hit credit institutions “unnecessarily hard,” according to a statement on the ministry’s website. A government-appointed panel has estimated the new Basel rules would add as much as 83 billion kroner ($13 billion) to the biggest Danish banks’ requirements by 2027.

Sweden’s Financial Supervisory Authority will “wait for new EU regulations before we can decide on new requirements,” Director Erik Thedeen said in a statement on Thursday.

The FSA “does not intend to mechanically increase capital requirements as an effect of new Basel standards,” he said. But the regulator “still sees that large capital buffers in banks are central to financial stability, and it cannot be ruled out that the capital levels in Swedish banks may need to increase when the agreement is implemented.”

Scandinavia’s financial industry has argued that the rules will hit banks unduly harshly by failing to take into account their low default histories.

“It is not reasonable that Swedish banks, which are already among the best capitalized banks in the world, will suffer harder than other banks by the new Basel regulatory framework,” Lindberg at the Swedish Bankers’ Association said. “We assume that the implementation in the EU and Sweden takes place in a manner that does not jeopardize the risk-based capital requirements that are successfully used in Sweden.”

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