Bloomberg News

Sweden’s FSA May Force Banks to Adopt Tougher Risk Models

November 16, 2011

Nov. 15 (Bloomberg) -- Sweden’s financial regulator may force banks to apply tougher risk weightings to their mortgage assets in an effort to restore investor trust.

A risk weighting floor on mortgage assets “is definitely something that we are looking into,” Martin Andersson, director-general of the Stockholm-based FSA, said in an interview today. “If risk weights continue to go down to zero, everybody would agree that is not okay.”

Swedish banks, whose total assets are more than four times the size of the economy, rely on mortgage credit for much of their business. Sweden’s $180 billion mortgage-securities market is almost twice the size of the country’s government-bond market. Riksbank Governor Stefan Ingves, who is also the chairman of the Basel Committee on Banking Supervision, this month warned that low risk weights are a “cause for concern.”

Under Basel II, the precursor to the latest set of regulatory standards proposed by the Basel Committee, Swedish mortgage assets were given risk weightings of 5 percent to 10 percent, according to the FSA. The European Banking Authority last month told lenders to raise that level to as high as 40 percent, as part of a temporary requirement that runs until the end of 2012.

‘Stabilizing Factor’

Sweden’s regulator wants to extend the tougher stance because it’s “seeing quite a range” in risk levels “between the different banks and it might very well be that some kind of floor here might be a stabilizing factor because it will be regarded as more trustworthy,” Andersson said.

The FSA will announce its capital rules by the end of the year. The regulator is unlikely to have prepared a plan on risk weights by then, Andersson said.

The EBA on Oct. 26 told Svenska Handelsbanken AB and Swedbank AB, Sweden’s two biggest mortgage lenders, to boost capital by 12.6 billion kronor ($1.9 billion) before July next year to meet its core capital reserve demand of 9 percent. Andersson said Swedish banks are “extremely well” capitalized and while it is “unfortunate” that they need to raise capital, the EBA is only trying to “find something that can bring more trust into the European banking system.”

Sweden wants to impose tougher regulatory standards than those proposed by the Basel Committee on Banking Supervision. Andersson today reiterated Sweden’s plan to enforce the stricter standards in January 2013, compared with Basel’s 2019 deadline.

--Editors: Tasneem Brogger, Jonas Bergman.

To contact the reporters responsible for this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net; Adam Ewing in Stockholm at aewing5@bloomberg.net.

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net Frank Connelly at fconnelly@bloomberg.net.


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