Swedish Finance Minister Anders Borg said banks in the largest Nordic economy are taking too long to wean themselves off foreign funding as he warns the financial industry will need to pay for the risks it’s creating.
“We’ll consider whether we need to introduce a tax on foreign-exchange financing or reserve requirements or something that is pushing them back on that issue, because it is a vulnerability in our system,” Borg said yesterday in an interview in Brussels. He is “not satisfied” with what his nation’s banks are doing to reduce reliance on offshore financing, he said.
Sweden’s central bank said in December it needs to add 100 billion kronor ($15 billion) to its foreign reserves to build a buffer against risks stemming from bank industry reliance on foreign funding. The nation’s four biggest lenders have assets that are more than four times its gross domestic product. That's prompted Sweden to impose more rigorous regulatory standards to protect taxpayers, Borg has said.
“We have a very strong banking system, but if you have a problem in it, you should deal with it when it is strong,” Borg said.
Following the collapse of Lehman Brothers Holdings Inc. in September 2008, Sweden’s central bank provided emergency liquidity peaking at $30 billion after international funding markets shut down.
Of the total securities issued by Swedish banks as of the end of December, including certificates and bonds, 76 percent were in foreign currencies, according to Statistics Sweden. That’s coincided with a rise in volatility in currency markets.
Sweden is working to prevent the isolation of its financial system as the European Union builds a banking union focused on the euro zone, where five of 17 countries have sought bailouts amid the bloc’s sovereign debt and banking crisis. In the currency zone, banking supervision will move to the European Central Bank next year and finance ministers are now debating rules for how to handle bank failures.
Borg said the new European rules should grant more leeway to countries that don’t use the euro because those nations don’t have guaranteed access to ECB liquidity. Sweden needs to act while its banks are healthy and the country has a good relationship with neighboring central banks, he said.
The four largest Swedish banks are Nordea Bank AB (NDA), SEB AB, Svenska Handelsbanken AB (SHBA) and Swedbank AB. (SWEDA) First-quarter earnings of Sweden’s biggest banks further strengthened their “solid” core capital ratios and allow for increased dividends, Fitch Ratings said in an April 30 statement.
Sweden is also urging its counterparts in the 27-nation EU to shift away from so-called austerity policies toward tax and spending efforts that will jump-start economic growth.
Borg said the EU faces a “very bleak outlook” and needs to rely on more than monetary policy to spur recovery. He called for more education spending and tax breaks for low and middle-income earners, particularly in countries with stronger public finances.
“We need to move also to use fiscal policy to give a little bit of push to the recovery,” Borg said. “We need to think now because the budget decisions are coming in the autumn and if we are going to do something, we need to really push for this now.”
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