Nordic banking needs stricter rules

TALLINN - Swedish Finance Minister Anders Borg said he’ll look at a common Nordic solution for capital standards after Nordea Bank signaled Sweden’s plans to implement the strictest rules could make it leave Stockholm, reports Bloomberg. “We will have to look at what we can do in this area and talk to one another to see how these companies are structured, and then we’ll solve it,” Borg said on April 14, when asked about potentially lower capital requirements in other Nordic countries. “It’s important that we find a good solution.”

Borg and other policy makers, such as central bank Governor Stefan Ingves, have argued that the largest Nordic economy should take a global lead in tightening capital requirements as regulators across the world look for ways to prevent a re-run of the worst financial crisis since the Great Depression. Sweden is home to four of the Nordic region’s six biggest banks and its bank industry is about four times the size of its economy.

Nordea Chairman Bjoern Wahlroos said Scandinavia’s biggest bank has a responsibility to its shareholders to seek the best capital environment, according to a recent report in Dagens Industri’s monthly magazine Dimension. “We of course must take into consideration should another Nordic country offer much better or much worse rules,” he said.
Wahlroos, who is also chairman of Sampo Oyj, Nordea’s largest shareholder, said the Helsinki-based company won’t raise its stake in Nordea to more than 25 percent, according to the magazine. His comments were confirmed by Maria Silander, a Sampo spokeswoman.

Borg wants to prevent future imbalances from Sweden’s credit and property markets destabilizing the country’s economy. Sweden’s banks are still recovering after their Baltic operations got caught in the region’s 2009 property bubble.
Sweden wants its financial industry to follow stricter standards than those set out by the Basel Committee on Banking Supervision, and to push the changes through earlier. The Swedish Bankers’ Association has said it will fight rules that undermine competitiveness, while Nordea Chief Executive Officer Christian Clausen has called the plan “not realistic.”
Banks should prepare for a 1 percentage point increase in capital requirements every year “over the next few years,” Borg said in March. The government in February sold 3 billion dollars worth of shares in Nordea, lowering its stake to 13.5 percent, as part of a broader plan to cut debt and sell state assets.

“It is important that Swedish banks are strongly capitalized,” Borg said in a speech on April 14. The government will propose exact rules toward the end of the year or beginning of next year, he said. “The idea is that Swedish banks should be more secure than other banks.”

The Swedish Financial Supervisory Authority said in July all four major Swedish banks passed the EU stress tests with a “comfortable margin.” The banks showed a core Tier 1 ratio in the range of 8.9 percent to 10.3 percent at the end of the test scenario, the group said in a statement.

Swedbank, the biggest bank in Latvia, Lithuania and Estonia, wrote down 2.4 billion dollars in 2009 after the former Soviet region suffered the European Union’s deepest economic slump. The losses fueled a 22 percent drop in Sweden’s krona against the euro from an August 2008 peak through a March 2009 low.

Under the so-called Basel III rules, banks are required to have a minimum core Tier 1 capital ratio, a measure of financial strength, of 7 percent. Nordea has a core Tier-1 ratio of 10.3 percent, fourth-quarter results show. That compares with 13.8 percent at Svenska Handelsbanken, 12.2 percent at SEB AB, and 13.9 percent at Swedbank.

Norway has also signaled it wants its banks to live up to stricter standards than those set abroad. The country’s financial crisis commission proposed levying a financial stability fee and asked for a review of taxes on bank profits and salaries. In Denmark, the government’s decision to let Amagerbanken fail earlier this year set a precedent in the European Union for depositor and senior bondholder losses.

“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 a March 14 interview. “I don’t have very different views.”