25 November 2011
Ministry of Finance
Proposal on higher capital adequacy requirements to reduce vulnerability of the Swedish economy
The Government is to propose higher capital adequacy requirements for systemically important banks in an effort to strengthen the stability of the Swedish banking system and reduce the vulnerability of the Swedish economy. The proposal, which is based on assessments from the Riksbank (Swedish central bank) and Finansinspektionen (the Swedish Financial Supervisory Authority), means that the banks are to have core Tier 1 capital equivalent to at least 10 per cent of risk-weighted assets in 2013 and 12 per cent of risk-weighted assets in 2015. A more detailed presentation will be given at a press conference later today.
"Financial crises pose a serious threat to jobs, growth and welfare. The upcoming proposal will reduce this threat and make Sweden less vulnerable to risk-taking by the banks," says Minister for Financial Markets Peter Norman.
Financial stability is a prerequisite for a functioning national economy for jobs and welfare. Sweden has Europe's third-largest banking system in relation to GDP, which makes Sweden more vulnerable to financial unrest. A financial crisis, in which the state is forced to act to maintain stability in the financial system, therefore risks becoming more costly for Sweden compared with other countries. To reduce the risk of tax-payers having to foot the bill for irresponsible risk-taking by the banks, the aim is to increase stability.
The new regulatory framework (Basel III) being introduced at a global level includes increased capital adequacy requirements for the banks. But, given Sweden's vulnerable position with a large and concentrated banking sector - factors that are not taken into consideration in the Basel III framework - the Government, Riksbank and Finansinspektionen are of the view that resilience to crises must increase further. Therefore the capital adequacy requirements for Swedish banks should be set higher and be introduced earlier than is set out in Basel III.
The core Tier 1 capital requirement on the four large systemically important banks - Nordea, Swedbank, SEB och Handelsbanken - should be increased to 10 per cent of risk-weighted assets, effective 2013. The requirement then increases to 12 per cent in 2015, five percentage points higher than Basel III.
"We will follow the banks' handling of the new capital adequacy requirements closely. It is not reasonable for banks to use the proposal on increased capital adequacy requirements and increased stability as a pretext to burden households and businesses," says Minister for Financial Markets Peter Norman.
Today, the Swedish banks are profitable and well-capitalised. It should be possible to adapt to the new requirements without affecting the terms and conditions of banking services for households and businesses to any great extent.
To ensure this, Finansinspektionen is to be given a mandate to monitor the banks' adaptation to the new regulations. The focus of this monitoring will include lending and mortgage margins.
The tougher requirements should enter into force on 1 January 2013. However, the implementation is affected both by ongoing negotiations at EU level and by stability in the Swedish financial system. Should the system be affected by a serious disturbance, the Government is prepared to postpone the entry into force of the higher level until after 2015.
To reduce the risk of financial crises and to ensure that future crises are less costly, the Government has created a framework for financial stability. It consists of a strengthened regulatory framework for banks, improved supervision and a more effective crisis management framework. Higher capital adequacy requirements are expected to further strengthen the framework for stability.
Minister for Financial Markets Peter Norman, together with State Secretary Johanna Lybeck Lilja, will give a more detailed presentation at a press conference later today. Martin Andersson, Director-General of Finansinspektionen, and Mattias Persson of the Riksbank, will also participate.
Time and place
Friday 25 November
11.00 Rosenbad press centre
Please bring your press credentials.
We look forward to seeing you.
Press Secretary to Peter Norman
work +46 8 405 58 62
cell +46 76 128 93 45
email to Victoria Ericsson, via the Senior Registry Clerk Markus Sjöqvist
Press Secretary to Peter Norman
work +46 8 405 10 00