The Swedish Financial Supervisory Authority has announced:
According to the Basel Committee, the new requirements can be phased in over a period of several years, but after full phase-in the requirements for total capital will be between 10.5 and 13 per cent and for core Tier 1 capital between 7 and 9.5 per cent. Two additional components, one for requirements in accordance with so-called Pillar 2 (capital increases for other risks) and one for possible future extra requirements for systemically critical banks, will be added.
The major Swedish banks should prepare themselves for a faster implementation of the regulations in Sweden than what is proposed by the Basel Committee in the transition rules. The requirement for total capital for the major Swedish banks is expected to be 15-16 per cent in a few years, of which at least 10-12 percentage points shall consist of core Tier 1 capital. These are approximate figures since the Pillar 2 assessment is individual – it is partly based on stress tests – and the size of the countercyclical capital buffer per definition will vary over time.
Sweden needs high capital requirements for its major banks since a large banking sector can expose society to large risks. The total assets of the four major banks are approximately four times the size of Sweden’s GDP. If one of these banks experiences problems or fails, the costs for society may become very large, while the increase in the cost of capital as a result of the new regulations – and thereby any effects on lending rates – is small. In reality, the major banks already fulfil or are very close to fulfilling the new requirements today.
Four times GDP is a big number. In the post Banks: How Big is too Big?, the UK ratio was estimated as 440% and the Canadian number as 200%. .J. Masson of the Graziadio School of Business and Management at Pepperdine University, estimates 156% for Canada and 47% in the US, as of 2006.
Lenders condemned the proposal, claiming the plan will create an uneven playing field.
“Swedish banks have a very good capital situation and there is no reason to rush out separate rules, which create competitive disadvantages both for the banks and for Sweden as a country,” Kerstin af Jochnick, chief executive of the Swedish Bankers’ Association, said in a statement.
Thomas Backteman, head of corporate affairs at Swedbank AB (SWED-A.SK), told Dow Jones Newswires there is already a problem with regulation in the U.S. and Europe moving at different speeds, and that the situation would worsen if rules in EU countries also differ.
Nordea Bank AB’s (NDA.SK) CEO Christian Clausen said in a February interview that different rules within the EU would distort competition and harm Europe’s ability to promote economic growth.
Nordea Bank, the Nordic region’s largest bank, had a 10.3% core Tier 1 ratio at the end of 2010, while Skandinaviska Enskilda Banken AB (SEB-A.SK) and Swedbank, the biggest lenders in the Baltics, had core Tier 1 ratios of 12.2% and 13.9%. Svenska Handelsbanken AB (SHB-B.SK), Sweden’s second-largest bank by market capitalization and the one deemed most overcapitalized by Goldman Sachs, has a 13.8% core Tier 1 ratio.
But Norway may follow:
Norway is signaling it may follow Sweden’s target of imposing some of the world’s toughest capital requirements on lenders as policy makers in Scandinavia embrace post-crisis measures that banks warn will undermine competition.
“There are good reasons for the level suggested by the Swedish authorities,” Bjoern Skogstad Aamo, the head of Norway’s Financial Supervisory Authority, said in an interview in Oslo yesterday. “I don’t have very different views.”
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“We are in favor of consultation between the Nordic countries on the speed of the new capital requirements,” Skogstad Aamo said. “The most important banks have to expect higher capital requirements than others.”
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Norway’s banks may also face a financial stability fee and taxes on bank profits and pay if proposals by the country’s Financial Crisis Commission are adopted by the Finance Ministry. The FSA wants banks to achieve capital and liquidity goals before looking into new taxes, Skogstad Aamo said.“That proposal that will increase taxation should rather wait until we have strengthened capital and liquidity,” he said.